Credit unions and banks would be encouraged to make small loans to low-income consumers by the creation of a fund to help them recover the majority of a lost loan, under a bill introduced today by Sen. Herb Kohl (D-Wis.).
Kohl's bill, which he said is aimed at reducing the need for consumers to use pay-day lenders, would establish a loan-loss reserve fund which would reimburse an institution up to 60% of an amount lost on loans of $2,500 or less if a consumer defaults.
The loan must have a repayment period of more than 60 days and have a "reasonable" interest rate.
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