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Enacting Definitions for Safe and Affordable Lending Products and Services


Sponsored by: Rep. Earl Harris, Jr. (IN)

WHEREAS, members of the National Hispanic Caucus of State Legislators (NHCSL) have a strong commitment to financial empowerment through improved access to capital, as well as a marketplace that offers safe and affordable lending products and services; and,

WHEREAS, the need for small-dollar, closed end credit exists in every community throughout the country; and,

WHEREAS, not all loan types are defined so that consumers know which products are safe, affordable and structured to reduce the likelihood of borrowers falling into a cycle of debt; and,

WHEREAS, responsibly structured credit is essential to support a household’s ability to save, build a sound credit history, and facilitate crucial investments that can provide foundation for other wealth-building activities; and,

WHEREAS, neither Federal law known as the Dodd-Frank Act (P.L.111-203) nor the Consumer Financial Protection Bureau have adequately defined or differentiated between the numerous small dollar, short-term consumer loans products in the marketplace, thereby creating an environment where consumers have little ability to make informed decisions as to which available products are safer, lower cost or structured in ways that provide more than short-term financial assistance; and,

WHEREAS, States like Missouri,[1] New Mexico, and Illinois have enacted laws that further and distinctly define the key structural qualities of closed end loans that are safe and affordable and establish standards that insure that safe and affordable products and services are offered by lenders; and,

WHEREAS, it is the intention of this Caucus to ensure access to loan products and services that are low cost and promote adequate safeguards to protect the general community from abusive financial services.

THEREFORE, BE IT RESOLVED, that The National Hispanic Caucus of State Legislators supports the extension of safe and affordable loan products, often called “traditional installment loans,” that meet the following terms and conditions:

  1. The loan serves as an affordable means for borrowers to establish and secure small dollar closed end credit while preventing cycle of debt issues inherent with non-amortizing balloon payment loans.
  2. The loan is "Fully-amortized" meaning the principal, defined as amount financed under the federal Truth in Lending Act[2] and the scheduled interest, defined as finance charge under the federal Truth in Lending Act, are repaid in substantially equal multiple installments at fixed intervals to fulfill the consumer's obligation.
  3. The loan, when used prudently by consumers, helps to establish, re-establish or improve credit scores.
  4. The loan is reported to at least one of the three major credit agencies: Equifax, Experian and TransUnion.

BE IT FURTHER RESOLVED, that in defining a true "traditional installment loan", we believe that a fixed rate, fully-amortized closed-end extension of direct consumer credit that has any of the following characteristics should not be considered to comply with a transaction that would be a true traditional installment loan:

  1. The transaction has a repayment term of one hundred eighty-one days or fewer and is secured by the title to the borrower's motor vehicle or auto.
  2. The transaction requires that the full amount of the credit extended together with all fees and charges for the credit be repaid in ninety-one days or fewer.
  3. The transaction's scheduled repayment plan contains one or more interest-only payments or a payment that is more than ten percent greater than the average of all other scheduled payment amounts.
  4. The transaction, at origination, requires the borrower:
    • To agree to a pre-authorized automatic withdrawal in the form of a bank draft, a pre approved automated clearing house or its equivalent,
    • To agree to an allotment or an agreement to defer presentment of one or more contemporaneously-dated or postdated checks, or,
    • To repay the loan in full at a borrower's next payday or other recurring deposit cycle, where the repayment is connected with a bank account.
  5. The maximum percentage rate is 21 percent or less, inclusive of all fees.
  6. The lender evaluates the borrower’s ability to repay the loan, taking into consideration both income and expenses, without the need to reborrow.

BE IT FINALLY RESOLVED, that The National Hispanic Caucus of State Legislators encourages the broader use of consumer loan products that are clearly defined in Federal and State laws and urges that a copy of this resolution be transmitted to the President of the United States, Vice President of the United States, members of the United States House of Representatives and the United States Senate, other federal and state government officials, and other State legislative colleagues as appropriate.


[1] MO Rev Stat § 408.512 (2014). https://law.justia.com/codes/missouri/2014/title-xxvi/chapter-408/section-408.512/

[2] 15 U.S.C. §§ 1601-1667f. https://www.ftc.gov/enforcement/statutes/truth-lending-act