Hearing of the Senate Banking Committee on the Semiannual Monetary Policy Report to the Congress

Hearing of the Senate Banking Committee on the Semiannual Monetary Policy Report to the Congress

Akaka Questions Fed Chairman Bernanke on Bank Failures and Preditory Lending

U.S. Senator Daniel K. Akaka questioned Federal Reserve Chairman Ben Bernanke today in a hearing of the Senate Banking Committee on the Semiannual Monetary Policy Report to the Congress.

SENATOR AKAKA: Thank you very much, Mr. Chairman. Let me add my welcome to Chairman Bernanke for being here. My concern in our country is to educate the people of America, as well as protect them and empower them in our financial system.

Given the recent failures, I'm concerned by the increasing lack of trust that individuals have in the banking system.

When large numbers of depositors lose trust in their financial institution and demand their money back, the bank can fail as a result. And we know that.

In addition, distrust of the banking system causes many immigrants to miss out on savings, borrowing and low-cost remittance opportunities found at banks and credit unions.

My question to you is, what must be done to increase trust in the banking system among depositors as well as among the unbanked?

CHAIRMAN BERNANKE: Well, Senator, you point to, I think, a legitimate question, which is that there are still many people, disproportionately immigrants, who do not have a checking account, do not have a savings account. And these are the unbanked, as the term -- term goes.

In not all, but in many cases, those people will be better off with a banking relationship. They might be able to avoid high fees for remittances, for example, or high fees for check cashing, if they were associated with a bank. To some extent, it's a cultural element.

We encourage banks to reach out to communities, to have people who speak the appropriate language. We are -- on the other side, we, as you know, and this is one of your important issues that you have been a leader on, is to promote financial literacy and to get folks to understand what -- you know, how to manage their finances and how important having the right relationships with financial institutions can be.

So I think it's really on both sides. We have to get the banks to reach out. We have to get the public to understand and reach out. Where necessary, as in the case of home mortgages, disclosures and regulation may be necessary to keep the contracts, you know, clear enough that the public can make use of them.

And in that respect, I hope that, for example, our actions on mortgage lending will restore some confidence. Where there are people who feel that, you know, they got burned taking out a subprime mortgage, perhaps in the future they'll see more clearly what the contract entails and they'll be more confident in taking out a mortgage.

So it's a very important issue. And we can address it, I think, from a number of different directions.

AKAKA: Thank you.

Working families, as you know, are having trouble paying for increases today in gasoline, groceries and other daily living expenses, while wages are not increasing fast enough and affordable credit is becoming harder to obtain.

I'm deeply concerned that too many working families are being exploited by the unscrupulous lenders through payday loans. And this is where protection, I think, is needed.

I've been impressed by the work of the National Credit Union Administration, NCUA, due to a NCUA grant on the windward side of the island of Oahu in Hawaii, at the Community Federal Credit Union in Kailua. And it has developed an affordable alternative to payday loans to help U.S. Marines and other members they serve.

We must further encourage the development of these alternatives so that working families have access to affordable small loans.

My question to you is, what must be done to protect consumers from high-cost payday loans and encourage the development of affordable payday loan alternatives?

BERNANKE: Well, again, I think that competition is the best solution. And I think banks and credit unions -- I give particular credit to credit unions. They have done some particularly good work in terms of providing remittance services to allow people to get money back to their families without exorbitant costs.

But I think we should continue to urge, you know, banks and other financial institutions to reach out into underserved neighborhoods. That's in fact part of the Community Reinvestment Act, to try to do that, to give people the alternative rather than the storefront in their neighborhood.

So I think that's a desirable goal. And financial literacy education and working with banks and with community development experts, I think we can make progress in that direction. And I would very much like to support that.

AKAKA: Thank you very much for your responses. Thank you, Mr. Chairman.

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