WASHINGTON, D.C. — U.S. Sen. Sherrod Brown (D-OH) – ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs – today announced that following his urging, the Obama Administration is proposing to fund programs to spur affordable financial products, including small-dollar loans and savings accounts. Both initiatives are aimed at providing families with affordable alternatives to expensive payday loans.

“When one in four Americans can’t access safe, affordable financial products, we must find alternative solutions so that families don’t have to depend on predatory payday loans,” said Brown. “Expanding access to affordable credit, as well as exploring ways to build savings, are steps we need to improve a financial system that is not working for many Americans.”

President Obama's budget proposal for fiscal year 2017 creates a Financial Innovation for Working Families Fund, which calls for $100 million for the U.S. Treasury Department to encourage the development of financial products that would help low- to moderate-income workers build savings. The budget also proposes $10 million for a program to offer small-dollar loans through its Community Development Financial Institutions (CDFI) Fund, which would provide consumers with access to safe and affordable financial services. 

In a letter last month, Brown urged President Obama to request funding for these initiatives. The programs were authorized under the 2010 Wall Street reform law but have not yet been implemented.

The programs would help individuals secure small-dollar loans and savings accounts from banks, credit unions, special community development firms, nonprofits, and other financial service providers. In addition, the Treasury Department would be authorized to establish partnerships with CDFIs, and state and local governments, to provide financial products with reasonable terms.

Building savings may help consumers avoid turning to costly payday loans, which many workers turn to make ends meet. These loans can carry hidden fees and can have annual interest rates as high as 763 percent. A 2014 study by the CFPB found that four out of five payday loans are rolled over or renewed, trapping borrowers in a cycle of debt. 

Brown has consistently pushed the CFPB to regulate all small-dollar lenders, including those that make payday, auto title, and installment loans. The CFPB is now considering new rules to address payday lending. Brown helped lead a letter from more than 30 Senators in June to CFPB Director Richard Cordray calling on the agency to create strong rules to rein in payday lenders in Ohio and nationwide.

In 2014, Senator Brown chaired a hearing on payday lending in the Senate Banking Committee and called for the CFPB to enact strong regulation of payday lenders. Additionally, Brown has supported the Department of Defense’s implementation of the Military Lending Act, which protects servicemembers from payday loans.

Brown has also focused on innovative ways to build savings, including through his proposal to strengthen the Earned Income Tax Credit. He was the key sponsor of a 2014 law called the American Savings Promotion Act, which eliminated barriers to financial institutions offering prize-linked savings accounts to encourage savings.

 

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