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Merkley intros bill to halt ‘predatory’ unsolicited loans

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(Update: Consumer credit industry spokesman defends practice)

WASHINGTON (KTVZ) -- Sen. Jeff Merkley (D-OR) joined Sens. Doug Jones (D-AL) and Tom Cotton (R-AR) Friday to announce the introduction of the bipartisan Unsolicited Loan Act, legislation that would mirror an existing ban on mailing ‘live’ credit cards by halting the predatory practice of mailing ‘live’ checks that are actually hidden, high-interest loans.

"The checks, which consumers are led to believe are refunds from their bank or another trusted financial institution, have put countless unsuspecting Americans on a path to financial ruin," the lawmakers said in a news release. The legislation would also ensure that consumers are not held liable for debt incurred from illegal, unsolicited ‘live’ check loans.

“Families across the country have fallen victim to scams where they think they’re getting a lucky windfall or refund from their bank, and instead are being lured into a high-interest loan they never asked for,” said Senator Merkley. “It should be illegal to trick unsuspecting customers into loans they don’t want, and that’s why I’m urging my colleagues to take a stand for consumer fairness and transparency by passing the Unsolicited Loan Act.”

“We need to continue to take a stand for hard-working families and make sure we have protections in place to prevent these predatory tactics,” said Senator Jones, a member of the Senate Banking, Housing and Urban Affairs Committee. “Many honest folks are not aware that by depositing these checks they are actually taking on a high-interest loan. Congress must act now and pass this common-sense legislation to protect consumers from this predatory scam.”

“People should understand exactly what they’re getting into when taking on debt. But many individuals don’t understand that ‘live’ checks mailed directly to consumers are just high-interest loans in disguise. Congress put an end to ‘live’ credit cards decades ago, it’s time to do the same with ‘live’ checks,” said Senator Cotton.

Nearly 50 years ago, Congress banned the practice of mailing ‘live’ credit cards, in standing with the long recognized view that consumer loans should require an application by a customer.

The senators’ legislation would extend existing consumer protections to include the mailing of ‘live’ checks that mislead consumers into taking high-interest loans, without limiting access to credit for those who willingly apply for and seek lending products. 

Additionally, the bill would also ensure that companies cannot shift from the mailing of ‘live’ checks to other forms of transfer, such as a gift card or an ‘e-check.’

The legislation has been endorsed by The National Consumer Law Center on behalf of its low-income clients.

The full text of the Unsolicited Loan Act is available here.


Ed McFadden, a spokesman for the American Financial Services Association, the nation’s trade association for the consumer credit industry, has offered this response to the legislation: 

“The ‘Unsolicited Loan Act’ would actually harm the consumers the senators claim to be helping and, by limiting access to a source of credit, send those consumers to the kind of predatory lenders the Senators claim they want to block.  

"So-called ‘live’ checks or convenience checks, like installment loans more broadly, can be vital lifelines for folks. Such checks provide quicker access to cash than many traditional loans, and can be used for unexpected costs, such as vehicle repairs or emergency medical bills.  These ‘live’ checksare prescreened offers of credit that clearly state that they are loans.

"Convenience checks already comply with a litany of federal and state disclosure requirements and truth in lending laws. There is no ‘fine print.’  The terms of the loan are very clear and straightforward for the consumer, and the offers are only given to creditworthy borrowers who are unlikely to become delinquent or default on loans. 

"Many lenders choose to send these offers as a legitimate business tool for marketing and customer outreach.  Customers can opt out of solicitations under the Fair Credit Reporting Act should they so choose.” 

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