II 

110TH CONGRESS 

2D SESSION S. 3632 

To combat predatory lending practices and to provide access to capital to 

those living in low-income and traditionally underserved communities, 

and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

SEPTEMBER 26 (legislative day, SEPTEMBER 17), 2008 

Mr. MENENDEZ introduced the following bill; which was read twice and 

referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To combat predatory lending practices and to provide access 

to capital to those living in low-income and traditionally 

underserved communities, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Fostering American 

5 Independence from Regressive and Abusive Credit Trans6 actions Act of 2008’’ or the ‘‘FAIR Act’’. 


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1 SEC. 2. MAXIMUM INTEREST RATES; PROHIBITION ON PAY2 DAY LENDING. 

3 Chapter 2 of the Truth in Lending Act (15 U.S.C. 

4 1631 et seq.) is amended by adding at the end the fol5 lowing: 

6 ‘‘SEC. 140. MAXIMUM RATE OF INTEREST; PROHIBITION ON 

7 PAYDAY LENDING. 

8 ‘‘(a) INTEREST LIMIT.—No covered creditor may 

9 make an extension of credit to a consumer with respect 

10 to which the annual percentage rate, as defined in sub11 section (b), exceeds 36 percent, or such lower limit as is 

12 provided under otherwise applicable State or Federal law, 

13 including section 207 of the Servicemembers Civil Relief 

14 Act (50 U.S.C. App. 527). 

15 ‘‘(b) PAYDAY LOAN PROHIBITION.—Notwithstanding 

16 any other provision of law, no covered creditor may— 

17 ‘‘(1) cash or advance money for a post-dated 

18 check in exchange for a fee or other payment of in19 terest, other than as otherwise authorized for the 

20 payment of a preexisting debt; or 

21 ‘‘(2) hold a check, require electronic access to 

22 an account at a financial institution, or hold title to 

23 personal property (except in connection with the 

24 purchase or rental of such personal property) as col25 lateral for a loan or other extension of credit. 


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1 ‘‘(c) DEFINITION OF ANNUAL PERCENTAGE CREDIT

2 RATE AND COVERED CREDITOR.—For purposes of this 

3 section— 

4 ‘‘(1) the ‘annual percentage rate’ includes all 

5 charges payable directly or indirectly incident to, an6 cillary to, or as a condition of the extension of cred7 it, including— 

8 ‘‘(A) any payment compensating a creditor 

9 or prospective creditor for an extension of credit 

10 or making available a line of credit, or any de11 fault or breach by a borrower of a condition 

12 upon which credit was extended, including fees 

13 connected with credit extension or availability, 

14 such as numerical periodic rates, late fees, cred15 itor-imposed not sufficient funds fees charged 

16 when a borrower tenders payment on a debt 

17 with a check drawn on insufficient funds, over 

18 limit fees, annual fees, cash advance fees, and 

19 membership fees; 

20 ‘‘(B) all fees which constitute a finance 

21 charge, as defined by rules of the Board in ac22 cordance with this title; 

23 ‘‘(C) credit insurance premiums, whether 

24 optional or required; and 


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1 ‘‘(D) all charges and costs for ancillary 

2 products sold in connection with or incidental to 

3 the credit transaction; and 

4 ‘‘(2) the term ‘covered creditor’ means a cred5 itor other than an insured depository institution (as 

6 defined in section 3 of the Federal Deposit Insur7 ance Act (12 U.S.C. 1813)) or an insured credit 

8 union (as defined in section 101 of the Federal 

9 Credit Union Act (12 U.S.C. 1752)). 

10 ‘‘(d) MANDATORY DISCLOSURES.—In addition to any 

11 other disclosures required by this title, a covered creditor 

12 shall, with respect to an extension of consumer credit, pro13 vide to the consumer in writing, at or before the issuance 

14 of such credit— 

15 ‘‘(1) a statement of the annual percentage rate 

16 applicable to the extension of credit; and 

17 ‘‘(2) a clear description of the payment obliga18 tions of the consumer. 

19 ‘‘(e) RELATION TO STATE LAW.—Nothing in this 

20 section may be construed to preempt any provision of 

21 State law that provides greater protection to consumers 

22 than is provided in this section. 

23 ‘‘(f) CIVIL LIABILITY AND ENFORCEMENT.—In addi24 tion to remedies available to the consumer under section 

25 130(a), any consumer credit transaction made in violation 


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1 of this section shall be null and void, and not enforceable 

2 by any party in any court or alternative dispute resolution 

3 forum, and the creditor or any subsequent holder shall 

4 promptly return to the consumer any principal, interest, 

5 charges, and fees, and any security interest associated 

6 with such transaction. Notwithstanding any statute of lim7 itations or repose, a violation of this section may be raised 

8 as a matter of defense by recoupment or set off to an ac9 tion to collect such debt or repossess related security at 

10 any time. 

11 ‘‘(g) VIOLATIONS.—Any person that violates this sec12 tion, or seeks to enforce an agreement made in violation 

13 of this section, shall be subject to, for each such violation, 

14 1 year in prison and a fine in an amount equal to the 

15 greater of— 

16 ‘‘(1) 3 times the amount of the total accrued 

17 debt associated with the subject transaction; or 

18 ‘‘(2) $50,000. 

19 ‘‘(h) STATE ATTORNEYS GENERAL.—An action to 

20 enforce this section may be brought by the appropriate 

21 State attorney general in any United States district court 

22 or any other court of competent jurisdiction, not later than 

23 3 years after the date of the violation, and may obtain 

24 injunctive relief.’’. 


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1 SEC. 3. SMALL-DOLLAR LOAN PROGRAM. 

2 (a) ESTABLISHMENT.—The Federal Deposit Insur3 ance Corporation (in this Act referred to as the ‘‘Corpora4 tion’’) shall establish, by rule, a program to encourage in5 sured depository institutions to incorporate small con6 sumer loans into their regular banking services. 

7 (b) PROGRAM COMPONENTS.—The loan program es8 tablished under this section shall— 

9 (1) be voluntary in nature; 

10 (2) allow for loan amounts of $1,000 or less; 

11 (3) provide for— 

12 (A) amortization periods of not longer than 

13 36 months, in the case of closed end credit 

14 plans; and 

15 (B) minimum regular payments that are 

16 designed to reduce outstanding principal 

17 amounts, in the case of loans under an open 

18 end credit plan; 

19 (4) prohibit the imposition of— 

20 (A) prepayment penalties; and 

21 (B) origination or maintenance fees that 

22 exceed the true cost of the loan to the financial 

23 institution; and 

24 (5) provide for an automatic savings compo25 nent. 


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1 (c) COMMUNITY REINVESTMENT ACT TREAT2 MENT.—Participation in the loan program established 

3 under this Act shall be a factor in the determination by 

4 the appropriate Federal financial supervisory agency of 

5 whether an insured depository institution is meeting the 

6 credit needs of its community for purposes of the Commu7 nity Reinvestment Act of 1977. 

8 (d) DEFINITIONS.—As used in this section— 

9 (1) the term ‘‘appropriate Federal financial su10 pervisory agency’’ has the same meaning as in sec11 tion 803 of the Community Reinvestment Act of 

12 1977 (12 U.S.C. 2902); 

13 (2) the term ‘‘closed end credit plan’’ means an 

14 extension of credit for a fixed period of time, other 

15 than an extension of credit that is secured by a 

16 dwelling or other real property; 

17 (3) the term ‘‘insured depository institution’’ 

18 has the same meaning as in section 3 of the Federal 

19 Deposit Insurance Act (12 U.S.C. 1813); and 

20 (4) the term ‘‘ open end credit plan’’ has the 

21 same meaning as in section 103 of the Truth in 

22 Lending Act (15 U.S.C. 1602). 

23 (e) REGULATORY ACTIONS.—The Corporation shall 

24 issue such regulations as may be necessary to carry out 


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1 this section, including with respect to the definition of 

2 terms (other than as provided in subsection (d)). 

3 SEC. 4. STUDY AND REPORT ON BEST PRACTICES. 

4 (a) STUDY.—The Federal Deposit Insurance Cor5 poration and the National Credit Union Administration 

6 shall each conduct a study of best practices to provide in7 centives for mainstream financial institutions to provide 

8 small dollar amount loans to consumers, including innova9 tive State and local programs, private sector, and not-for10 profit initiatives. 

11 (b) REPORT TO CONGRESS.—Not later than 180 days 

12 after the date of enactment of this Act, the Federal De13 posit Insurance Corporation and the National Credit 

14 Union Administration shall each submit a report to Con15 gress on the results of the study conducted under sub16 section (a). 

Æ 


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