The meeting convened at 8:00 a.m., on the Third Floor of the L. William Seidman Center at 3501 North Fairfax Drive, Arlington, Virginia, Sandra L. Thompson, Moderator, presiding.

PRESENT:

Table Of Contents

1. Opening Remarks
   • Moderator Sandra L. Thompson
   • Chairman Sheila C. Bair
   • Congressman Barney Frank
2. Panel Presentations:
   • Panel 1:
     • Andrew M. Egeland
     • James D. "Jay" Dreibelbis
     • Don Giles
     • Tammy Jo Snyder
     • Dawn Bannwolf
     • Greg Oveland
   • Question/Answer Session
   •  
   • Panel 2:
     • Rodney E. Hood
     • Jim Blaine
   • Question/Answer Session
   •  
   • Panel 3:
     • Robert Mooney
     • Serena Owens
     • Robert Lee
     • Ky Tran-Trong
   • Question/Answer Session
3. Keynote Speaker:
   • Kelvin Boston
4. Panel Presentation:
   • Panel 4:
     • Marcus Beauregard
     • Barbara Thompson
     • Jan Cody Gaudio
     • Question/Answer Session
   • Workgroup Discussions

P-R-O-C-E-E-D-I-N-G-S
(8:06 a.m.)

MODERATOR THOMPSON: Good morning and welcome to the FDIC's conference on affordable, responsible loans for the military.

My name is Sandra Thompson, and I'm the Director of Supervision and Consumer Protection at the FDIC. It is my pleasure to introduce our opening speaker.

Sheila Bair serves as the 19th Chairman of the FDIC. She joined us almost six months ago, and she has wide-ranging and extensive experience working on issues relevant to the banking sector. Her experience includes serving as Commissioner on the Commodity Futures Trading Commission, Senior Vice President for Government Relations at the New York Stock Exchange, Assistant Secretary for Financial Institutions at the Department of the Treasury, and most recently she served as Professor at the University of Massachusetts at Amherst.

I'd like to say at the outset that Chairman Bair has made a huge impact on some significant issues that are very relevant to the banking industry. I mentioned earlier that she hasn't been here quite six months, and she has already addressed deposit insurance reform implementation, policy issues dealing with capital reform, Basel II, Basel 1A. She has established an advisory committee for economic inclusion to help provide the FDIC with advice on ways to bring more people into the financial mainstream. And those are just a few of the many items that she has dealt with.

I didn't mention the affordable small loan guidelines that we issued for industry comment earlier this week, and I didn't mention the industrial loan corporations, the other high-profile and challenging issue that she has had to face and tackle head on during the past six months.

We at the FDIC are fortunate to have Sheila Bair as our Chairman. I've had the pleasure of working with her on most, if not all, of these issues, and I can truly say that she is committed, highly engaged, and very motivated to come up with win-win solutions. I know firsthand that she is guided by two principles -- doing the right thing and striking a balance.

She respects and is open to different points of view. And this is very important as she has had to consider on any issue the views of the diverse banking industry, the large institutions and community banks, consumers, and the other regulators. Her collaborative approach and willingness to address tough issues puts us in the position to come up with good solutions -- solutions that work for the regulators, the consumer, and the banking industry.

I might also mention that this conference was her idea. We were at a meeting a couple of weeks ago, and she challenged us to help find an alternative to the high-cost loan products that are offered to the military.

It is my privilege and pleasure to introduce the Chairman of the FDIC, Sheila Bair.

(Applause.)

CHAIRMAN BAIR: Thank you, Sandra. That was a very flattering introduction, just about the way we went over it.

(Laughter.)

The feeling of mutual respect and admiration is truly mutual. I was pleased to be the Chairman who convinced Sandra to accept the job as the head of our Division of Supervision and Compliance, which is the largest division of the FDIC, and it has been fabulous working with her.

Good morning, and welcome to our program today on affordable, responsible loans for military personnel and their families. Thank you for your interest in this topic and your support for our program. I know a lot of you have traveled considerable distances. We even have a contingent from Guam, and I really do appreciate the time and effort all of you are putting into this very worthwhile cause.

I would like to give special recognition to General Andrew Egeland, President of the Association of Military Banks of America, who has provided invaluable assistance in organizing this event. I would also like to recognize our other guests from the Department of Defense.

In addition, I would like to extend a special welcome and thanks to our speakers, particularly Congressman Frank, all of whom have put in an enormous amount of time and energy in preparing for this program today.

With this conference, we hope to address a serious problem -- the pervasive need for more responsibly priced, small dollar loans. As we know from press reports and the Department of Defense's recently-issued report on predatory lending, military personnel and their families are frequently turning to high- cost providers for their financial services needs.

The adverse impact of costly credit on the military should not be underestimated. According to the DoD report, a recent study within the Navy shows the number of security revocations and denials for financial reasons increased from 212 in FY2002 to nearly 2,000 in FY2005.

The DoD report points to case studies collected from military installations showing that high interest loans, whether in the form of payday loans or unscrupulous automobile financing, can leave a service member with enormous debt, family problems, and difficulty maintaining personal readiness for active duty.

Although high-cost predatory loans are not the sole factor, they significantly contribute to these problems. All of us -- regulators and members of the banking community -- have a duty to help these individuals and their families develop alternative affordable credit options.

These alternative products could be used to address an immediate financial need or simply to help these individuals regain their financial footing. Given the need, it seems to me that banks have a perfect opportunity to step in and offer more reasonably priced credit.

Banks have the infrastructure and the imagination needed to create an array of affordable lending services, along with savings plans, to meet the needs of military customers. As we will hear today, there are lenders that have found that this business has manageable risks and can be profitable, especially if the bank ties regular loan payments to a savings account so borrowers have an automatic mechanism to build a financial cushion.

Banks that reach out to establish relationships with military consumers participating in fringe financial services will reap the awards of cultivating new full- service customers by building relationships that will strengthen as these individuals' economic circumstances improve.

The broader question now is whether the financial services industry and their regulators can effectively encourage the type of products, services, and outreach that will motivate these customers to enter the mainstream market.

Indeed, this is the hoped-for outcome of today's discussions. To further our efforts, the FDIC recently released, actually just yesterday, for public comment the Affordable Small Loan Guidelines. These guidelines explore several aspects of product development, including affordability and streamlined underwriting.

We encourage banks to offer products with affordable, reasonable interest rates, with no or low fees, payments that pay down the principal balance of the loan, and a savings component incorporated into the loan. In addition, institutions offering these loan products in a responsible manner will receive favorable consideration under the CRA.

In addition to welcoming you today, I also have the honor of introducing this morning's keynote speaker, Congressman Barney Frank of Massachusetts, the incoming Chairman of the House Financial Service Committee.

And, Congressman Frank, congratulations to you. The Steering and Policy Committee nominated him to be the Chairman of the Financial Services Committee, and ratification by the full House is expected this afternoon.

Congressman Frank was first elected to Congress as the representative of the 4th District of Massachusetts in 1980. He was reelected just last month overwhelmingly to serve his 14th term. He is one of the most influential members of the House of Representatives, known I think as a principal pragmatist for his non-partisan approach and his ability to get legislation done.

He is certainly also a recognized leader in affordable housing, and has developed much of his legislative work defining ways to increasing the availability of affordable housing to low and moderate income persons. He has championed protections against predatory lending practices, and has worked hard to encourage banks to reach out and creatively meet the credit needs of people who are not yet part of the financial mainstream.

And I'm sure we all look forward to a highly productive upcoming Congress in the House Financial Services Committee with Chairman Frank at its helm. And with that, Mr. Frank, please.

(Applause.)

CONGRESSMAN FRANK: Thank you, Madam Chair, and thank you all for being here. I was really eager to do this. I will tell you -- you forget sometimes, and I got this invitation and it's a busy week for us because the majority has decided that they want to get everything finished this week.

Well, they have decided that they don't want to finish anything this week. They want to leave it all for us, because all the fun decisions were made before the election. So all of the decisions no one wants to have to make are the ones that are still pending, and we'll inherit them, but that's part of the job and it's a decision we would have made, too, if we were in their shoes.

But at any rate, it has been busy, so yesterday afternoon I was sort of saying, oh well, I can relax tomorrow, the caucus doesn't start 'til 9:30. And then, I looked at my schedule, and at first brush I will tell you this event fell in the category that people in my business have, which is, why did I agree to that?

(Laughter.)

Get out here from Capitol Hill at 8:15. But then, I remembered, seriously, and I have cut down on the invitations I am able to accept because of my new duties, but this is as important an event as is going to be going on in the financial services area. And I am very grateful to the FDIC, to the members of the Board for this, and to those of you for participating.

Let me just set the general point. Obviously, this is very important in the specific. Helping the men and women who put their lives on the line for the country, and who at the very least disrupt their family and make financial sacrifices, obviously we as a society owe them much more than we can ever pay. And anything that can be done to ease their difficulty is really the patriotism of the highest order.

So in and of itself, the specific mission of improving the financial situation for these young people, if you're worried about the kind of thing you have to worry about if you're in the military and facing combat, then everything else ought to be a given.

And that's what you're here to do, and I appreciate it, but it has broader implications as well -- implications for what I think is a central domestic issue affecting this country, and that is, how do you change public policy so that economic progress and growth does not go forward in a way that leaves the average citizen thinking, what the hell do I care? Because we're in that situation now.

We're in a situation where the average American does not see the connection that he or she ought to see between growth in the gross domestic product and his or her well being.

Now, I think there's an equity issue here, but, by the way, that's based on reality. We've got a situation where the gross domestic product has been going up at a very good clip. It recently tailed off, but it has been going up at a pretty good clip, three percent or more.

But real wages have been frozen, and, in fact, if you -- depending on the time period, five years, they've eroded. Fewer people have health care. People are worried about their pensions. That is, there has been a disconnect between growth in the gross domestic product and the well being of the average worker.

Alan Greenspan said this in 2004 to the Joint Economic Committee. "We have done very well with increased productivity. Increased productivity is being driven by globalization and by the application of technology, as much as anything else."

Both of those have two characteristics -- and now I'm not quoting Alan, I'll get back to him -- but globalization and -- he did cite globalization and technology as the main drivers of productivity. They have one thing in common: they exacerbate inequality.

Now, inequality is not a bad thing. You can't have a capitalist system without it. The problem is that you can reach a point where you have too much inequality, where it generates social unrest, or it may even have negative economic consequences, and you can get beyond what's needed for the efficiency of the system.

Globalization -- obviously, the key thing about globalization is the mobility of capital. And one of things we know is this: if you're in a negotiating situation, and one party can pick up and leave, and all the other parties have no options, the party that has the option to pick up and leave has an advantage. That's capital under a globalized system. Capital is mobile. Nothing else is quite as mobile.

People can't pick up quite as easily. Governments can't pick up quite as easy. So globalization enhances the bargaining power of the most mobile element -- capital.

You also have technology, which means that essentially if you're a high school graduate with a willingness to work, you no longer can make the kind of living you could make 40 years ago. I mean, from the post-war period into the '70s, high school graduates in America could go to work in the steel or auto or glass or rubber factories or elsewhere, go into the building trades, make a good living. That has become harder to do.

The consequence has been that inequality has grown. And here let me go back to Greenspan. He said, "We've done very well with increased productivity, and that has generated a lot of new wealth." But virtually all of the newly-created wealth has gone to the owners of capital, and none to people who work in wages.

Now, obviously, the owners of capital have to get a good chunk of it, because otherwise the system doesn't work. And that's where you come in, because your job essentially in our system is to accrete small amounts of capital from a lot of individuals, bundle it up, and make it available to people who can invest it productively. That's the mediation function. It's very important. It's one we're dedicated to helping you perform as well as you do.

But when all of the increased wealth goes to the owners of capital, what happens is that the non-owners of capital say, what do we care? Now, that's a problem for this reason. Much of what generates wealth can have short-term negative effects on some people.

You know, the model here is Joseph Schumpeter's creative destruction, as he called it, in which as the system goes forward old forms of economic activity are destroyed, and that frees up resources for the creation of new wealth. And that's a good thing, if the people who are the victims of the destructive part can participate in the new wealth. They don't think they are right now, and that's the problem.

Now, you may say, what do I care? Well, I have a view that that's unfair. I think morally that's not right, but I recognize you don't always win, you know, by having the most moral argument. I mean, the analogy that Adlai Stevenson -- once in every speech, said them all -- "Governor, you're going to have the votes of all of the thinking people." He said, "Yes, but unfortunately I need a majority."

(Laughter.)

Now, it was making cracks like that about the people that probably helped him not get a majority.

(Laughter.)

But I need a majority to deal with this.

Here's the problem. We are now in political deadlock in this country. There were measures that I would guess being in the banking industry most of you think are a good thing for promoting growth -- more engagement with the global economy, trade, accepting foreign direct investment, the ability to adapt technology, which may mean outsourcing, a reasonable level of immigration, not illegal but legal immigration, the ability to bring in people with skills.

None of those today command a majority in the Congress. Foreign direct investment shouldn't be -- that's a good thing when people want to invest in businesses. We're talking direct investment, not buying equities. But after the debacle with Dubai, when I think the administration made a mistake, why somebody there didn't say, you know -- to our good friends, and they're good people there in the Gulf -- you know, this is not the best time for you to buy seaports. Could you buy, like, shopping malls or hotels or office buildings or anything else? But not airports and not seaports. It's not fair, but that's the reality.

Instead, you got a reaction so that some of us, including most of the Democrats, wanted to pass a bill, and we did in the House, to set up a regular welcoming regime for foreign direct investment, which is generally a good thing. And they wouldn't even take it up in the Senate, because they were afraid they would out-demagogue each other and put in provisions that would make it impossible for anybody to do foreign direct investment.

For example, any investment of more than X million dollars would have to sit before a congressional committee for a couple of months. Now, who is going to invest money? And you don't know whether it's okay until it sat for 30 days or 60 days before Congress, all the -- all your competitors say it's lunacy.

But that's -- now, we were able to park that, but we can't get the good bill through. And while nothing negative happened, clearly businesses don't like uncertainly and ambiguity, and it would be better if we had a framework for them.

You can't get a trade bill through. I've been critical of some trade bills. I voted for the Vietnam trade bill. It failed in the House under the Republicans. They needed two-thirds. They didn't get two- thirds. They got a narrow majority, but then they were afraid to bring it up without a majority, and it's being held in the Senate.

We even have objections to the implementation of technology. When we passed the bill, which I strongly supported, that allowed those of you in the banking business not to have to send people paper copies of the checks, but to send them faxes, we got complaints. People said, "Well, I want my checks." I said, "Well, what do you do with them? Do you put them in the drawer?"

You can get them if you want them, you get a fax, and then they would say often, "Well, okay, but why did you do it?" And we would say, "Well, it will make the system more efficient." And their answer often is, "Well, what do I care?"

So the owners of the bank do well, but it doesn't help me. There is -- so the reason to break this deadlock and show the average citizen that he or she does have some skin in the game of economic growth is -- they are able to park things that are pro growth. We have a deadlock in the system.

People in the business community, on the conservative side economically, have had control for a while, and they have been able to park measures that some of us support that we think would diminish -- not abolish but diminish inequality. And on the other hand, people who are concerned about what they perceive as inequality have been able to park growth.

You might ask: well, how come -- you know, if you've got enough power to do this, why can't you do that? The answer is: in the American system of government, the side that doesn't want to do anything starts off with about a 25 percent advantage. I mean, that's checks and balances.

So what we have is that each side is able to use the veto powers to block things. What we need to do is to work together, so that we can show people -- the average worker -- that they're going to make some economic gains and then get the support simultaneously for full growth.

Now, you had people in the White House frustrated by this. There was a great quote in July from one of the President's top economic people who said, "This is very frustrating to us, because we're getting this great economic growth and we're not getting any credit for it."

And the answer is, yes, you're not getting any credit for it, because the average citizen does not see himself or herself as the beneficiary. And you tell them oh, no, no, no, this is a great economy, and they give you the answer essentially that Chico Marx gave Groucho in that scene where Groucho catches Chico red-handed, and he says, "Why are you doing that?" And Chico says, "I'm not doing it." And Groucho says, "What are you talking about? I saw you." And Chico says, "Hey, who are you going to believe, me or your own eyes?"

(Laughter.)

The question is Americans say, you know, who am I supposed to believe, you or my own wallet? They believe their wallets.

Now, I think this is unfortunate. And so I want to break this, and I want to do it in a number of ways. But this gets me to what is happening here and why I am so grateful to Ms. Sheila Bair and her colleagues for going forward.

This is an example of how we can use one of the most powerful engines of the capitalist system, the financial services industry that performs that enormously important critical function of mediating between the individual pockets of wealth and investment, and show how this can benefit a broader segment of the society, how equity and growth can go hand in hand, by reaching out to this segment, by making special -- basically, by saying to people, here's the deal.

Right now, if you are poor, you are almost certainly paying a much higher percentage of your income in transaction costs than any of us in this room do. You're going to payday lenders. You're going to check- cashers. You're getting money orders. That's if you're doing it legally and you're not going to the leg-breakers. I'm from New Jersey, so there is still some --

(Laughter.)

-- residual stuff going on there. But those of us -- and it's exactly the opposite of what it should be. The wealthier you are in this society, the smaller percentage of your income you pay for transaction costs. And if you are poor, you are paying a significant chunk.

And here we have this wonderful thing -- our banking system -- and making that available -- by the way, I think it is a great chance for people in the banking business to dispel some unfair myths, to make clear that a well-run banking system is not just an important engine of capitalist growth, but can be a way for the society to improve the quality of people's lives, by using the efficiencies that we have and reaching out some to people.

So that's why, as I said, this is important for what you're doing for the military, but I intend to work with Chairman Bair and others to encourage you to make this a pattern for going beyond the military and reaching out to others and reaching out -- by the way, not just with payday lending but with check-cashing, with other services.

We've only begun to do that with the cooperation of the regulators, the financial regulators, with remittances. You also have some hardworking people working at very unpleasant jobs for low dollars and sending them back to support their families elsewhere in the world, and paying very high transaction costs.

And by getting the banks involved in the remittances, and working with the Inter-American Development Bank, so there are banks at the other end where they can get a wire transfer and cash it, because what good is it to get it if you're in Guatemala or Honduras and you can't cash it, we're helping there, too.

So I encourage you to take full advantage of this, not just for the good it does but because you will be setting an example, frankly, of an important part of the business community of the capitalist system that is showing people the advantage and how we can work together and why they have some stake in this operation.

Now, let me turn to one other aspect of this that's important. By the way, we're going to try and do this with subprime lending for mortgages. It is across the board. And here's the one issue I will raise. And, obviously, the question is: when we reach out in this way, and we reach a segment of the population that's below economically where we've historically been able to provide these services, how do we make up for the fact that there's going to be a higher loss rate there than among the very wealthy?

And this is a philosophical question I've been dealing with, and I urge you to take it into account. And it's this: obviously, you wouldn't be encouraged by your regulator to go into this business if they didn't think that a great majority of the people who take the loans were going to pay them back. I mean, there will be more losses, but clearly if it was going to be a very high one it wouldn't make any sense. So you are being encouraged to do this.

Now, how do we deal with the fact that these loans make sense? Because most of the people who get them will pay them back, but a higher percentage of them won't pay it back. And our historical model I think has to be challenged. I don't believe this is everybody's model.

And what we've done is we've said, look, if we're going to extend economic services -- borrowing -- if we're going to extend the right to borrow to a class of people with shaky credit history, because we know that most of them will pay back but a higher percentage won't, here's what we'll do. We'll make the ones who are going to pay back subsidize the ones who don't. That's the problem.

Let me give you another example outside of here. The Bush administration came to us and said, you know what, we like home ownership. Let's have the Federal Housing Administration, the FHA, lend money to people who are below where we have been lending before, because implicitly we know most of them are going to repay the loans. They're going to buy houses.

A higher percentage of them won't repay, so here's what we'll do. We'll say that if you're in this category, you pay more up front and your insurance premium is higher going forward. In other words, the 90 percent of the people who are going to get those loans and pay them back will pay higher than I would, because they're going to subsidize the 10 percent who won't pay them back.

And my answer was, no, that's not fair to the people. Why should poor people who are going to pay back be the ones who subsidize the poor people who don't pay back? It's important for us to reach out. We have to find some alternative ways to do that. We have to cross-subsidize -- a dirty word maybe to some people, but that's important.

Here's what I'm going to do in the FHA model, and I'm going to try and think and work with you on what's the alternative -- the equivalent here. The FHA now, as many of you know, can't insure premiums, it can't insure loans above a certain dollar amount. And some of you may like that, because some people see the FHA as too competitive.

But I'll tell you, here's the problem. Under the current law, the FHA, because of this top dollar beyond which it can't get into the business, it's to keep them from doing luxury housing. So as a result, they cannot insure luxury housing in Nebraska or Mississippi.

They also cannot insure luxury housing in Massachusetts or California. In fact, they can't insure any housing in Massachusetts and California, because the flat dollar amount nationally that cuts off luxury housing in much of the country cuts off all housing in my part of the country and elsewhere. So what I'm going to propose is that we substitute for the dollar -- flat dollar cutoff of the FHA a percentage of median house price.

We do that with every other housing thing. If you've got Section 8 housing, you don't get the same rental in Omaha that you get in Los Angeles. We take into account in housing of all of the important economic factors in our lives. The one that varies most I believe in price, according to location, is housing. Other things are uniform.

And the reason, again, is mobility. If something is mobile, it better have the same price everywhere in the country or you'll go buy it somewhere else. But it's pretty hard to buy the house in South Dakota and move it to the lakefront in Chicago. So geographic differentiation in price is a factor.

What I'm going to do is put in a bill that says that we will lift the cap, so we can lend more to people above the current level in high-cost states. That will make money for the Federal Government, because those people will pay back. And I will take the money, if my bill is successful, that we gain from that and recycle it, so that that will take care of the higher loan loss rate for the lower income people.

And that's the kind of principle that we have to have, so I encourage that. That's not just for the military. We will be working with you, so you can expand the ability of low income -- not the ability, because they have it.

And I have to say here, banks have not been the problem, and I keep telling my liberal friends this. It is not that banks say no poor people allowed. It is the lack of sophistication, the fears, etcetera, that keep people out of the banks, the fear of high fees.

I want to work very closely with you to enable a system in which you can encourage lower income people to come in and price things so that the people who are going to make the payments, the people who are going to pay back their loans, the people who can pay their own way, pay their own way. But let's find a way not to make them pay for their -- that minority in their same economic category who are going to forfeit and default. And that's where we will work together.

But, in general, I think this is a very important point. It's namely -- I plan to talk about it -- that the banking system, as it now exists in this country, is an underutilized asset for the lowest income people in the country. That we should take advantage of the existence of the banking system, and the function it performs in our capitalist system in general, and together make a real outreach effort.

Now, the committee on which I serve -- and I hope to chair -- because it also has the jurisdiction over housing, has the largest component of minority members of any. We have about 15 African-American and Hispanic members together. They are eager to work with you on this. I have staff that is eager to work with you.

So I just want to close by saying, again, thank you for what you're doing for our military personnel, and thank you for setting a model here with the military personnel for extending this service to people outside the military, and to extending banking services in general to lower income people. My job will be to work with you. You're in the banking business, and I'm not, and I don't tell you how to run your business.

I do want to work with you, so that we can deal with that one issue that I raised, which is, how do we extend these services in a fair way, because it is a good thing. And by the way, these things reinforce.

To the extent that the lowest income people, in availing themselves of the services, are going to be charged for the higher loan loss rate of the others, then that's a deterrent. And to the extent that we can work out a substitute forum to take care of that -- in other words, what we're saying is that, society, we're going to gamble.

And we know that 90 percent of the people are going to repay the loans, or I don't know what your figure is, but it has got to be something close to that or it doesn't make sense. We are, then, going to find a way across the board to subsidize the other 10 percent, and that will allow us to subsidize the others better.

And I think this is a case where, I don't know, you're doing something that I believe would enhance the profitability, because, look, not all of these people are going to be poor all their lives. You're going to get them into the banking system, and that's a good thing for them as well.

And I don't know -- some of you must remember, as I do, Tom Lehrer, the former MIT mathematician who used to do these satirical songs. Just a cousin of Jim Lehrer, by the way, Jim told me that one time. And he had a number of funny songs he would write.

Actually, there's one that sadly has become more relevant -- that they're rioting in Africa, there's strife in Iran, what nature doesn't do to us will be done by our fellow man. It was sadly predictive of some of what is happening.

But he had one song called the Old Dope Peddler, and it -- I have a terrible singing voice. I won't inflict it on you. But one refrain was, it was the old dope peddler doing well by doing good, i.e. selling the stuff and making money and making people happy. Not a sentiment I endorse --

(Laughter.)

-- I want to be very clear. But in a much better context, you can do well by doing good. You can perform an important social service, both specifically and in general, by giving the business community an example of how you can make social responsibility profitable and help us reunite this country in favor of a growing capitalist economy that -- with the benefits more widely shared.

So I thank you very much. I am very appreciative to the FDIC for doing it, and you will have my full cooperation.

(Applause.)

MODERATOR THOMPSON: Thank you very much, Congressman Frank.

And I'd like the first panel to come up. And while you're coming, I'd like to frame the issue for the rest of us. Military personnel have characteristics that have made them attractive targets for predatory lenders in the small loan market.

What are those characteristics? On the one hand, 48 percent of enlisted service members are younger than 25 years old. They have limited experience with managing finances. They are on their own without guidance or assistance from their families. And they may be receiving their first significant paycheck.

On the other hand, they have steady jobs. They are paid regularly and are not likely to be downsized, outsourced, or to quit their employment. They are also part of a military culture which emphasizes financial responsibility with a basic policy in place that explicitly states that they are to pay their debts on time.

Finally, active duty military are geographically concentrated in and around bases where they live. Studies show that payday lenders and other lenders with high- cost products situate themselves intentionally in close proximity to the front gates of military installations.

Sound alternatives are necessary, and to that end we begin our series of panel discussions with representatives from the military banking community. These are institutions that are dedicated to serving military personnel, and they have developed a number of alternatives to address the credit needs.

The financial institutions our panelists represent are members of the Association of Military Banks of the America, the AMBA, which is a nonprofit association of banks operating on military installations, banks that are not located on military installations, but they serve military customers, and military banking facilities designated by the U.S. Treasury.

The AMBA is ably served by Major General Andrew M. Egeland. Mr. Egeland comes to the AMBA after a distinguished career as an Air Force Judge Advocate. In his last active duty assignment, he served from 1993 until his retirement in March 2000 as the Deputy Judge Advocate General.

He was headquartered in the United States and worked for the Air Force. As a Major General, he was one of two senior partners in the Air Force military law firm comprising more than 1,500 military and civilian lawyers. Throughout his nearly 32 years of active military service, Andy held top leadership and management positions as a military attorney and served as legal counsel to senior military and civilian leaders of the Department of the Air Force.

He served overseas in Germany and Korea, and traveled extensively in Europe and Latin America. I'd like to thank General Egeland again for all of his help in planning this event and, in particular, organizing this panel of outstanding bankers that are dedicated to serving military personnel.

These individuals will discuss features of responsible loan products they have developed and the priority military banks place on offering alternatives to predatory lending and assisting servicemen and women address financial emergencies as well as regain their financial footing.

General Egeland has kindly offered to make some opening remarks and introduce this distinguished panel.

Thank you all, and welcome. And, General Egeland, I'd like to turn over the podium to you.

(Applause.)

GENERAL EGELAND: First of all, thank you for that unexpected introduction, because the real focus is on the panel members.

But, Madam Chairman and distinguished members of the audience, I am privileged to be here to represent the Association of Military Banks of America, and to introduce the panel of distinguished members of the military banking community who will discuss low-cost, affordable alternatives to products being offered to military personnel and their families by the high-cost providers mentioned by the Chairman in her opening remarks.

The Association of Military Banks of America is in its 47th year of service to the Department of Defense, and, most importantly, to the men and women in uniform and their families. And as was mentioned, we are a not-for-profit association comprised of community banks and large banks operating on the installation or off the installation, serving the military customer.

Now, each year the military departments recognize their outstanding military bank of the year. Now, the criteria for the award and the selection process are established by each of the services. The association has no role whatsoever other than to host the luncheon in which the award is presented.

The criteria include much more than providing specific credit products, which is the focus of today's conference. The military banks support our nation's military personnel, and it involves a commitment to service above and beyond the normal banking practices.

And I'm proud to say that the winning bank for each service is represented on today's panel. And while not a current winner, the remaining two panel members represent banks that have won this coveted award in the past. Starting on your left is Jay Dreibelbis, President of the First Community Bank Shares, Incorporated, in Texas, which is a holding company for Fort Hood National Bank, which is the Army's Outstanding Bank of the Year for 2005.

Seated next to Jay is Don Giles, the past Chairman of the Association of Military Banks of America, and the President and CEO of Armed Forces Bank and Armed Forces Bank California, which is the Navy's Outstanding Bank of the Year for 2005.

And I might add, because I said the commitment goes above and beyond just providing products and services, last month I had the privilege of attending a ceremony in Washington in which the Secretary of Labor presented one of three national exemplary voluntary efforts awards, known as the EVE Award, to Armed Forces Bank for its equal employment opportunity support program and its commitment to community service.

Seated to Don's left is Tammy Jo Snyder, a Vice President and the Manager of the Tinker Air Force Base Branch of First National Bank of Midwest City, Oklahoma, and that is the Air Force Outstanding Bank of the Year for 2005.

And I might add that bank won the award for 2004, so it's almost an unprecedented back-to-back winning of the Air Force Outstanding Bank of the Year Award.

Sitting next to Tammy is Dawn Bannwolf, Vice President of Bank of America Military Bank, which is also an Outstanding Bank of the Year award winner on more than one occasion.

And, finally, on my far left, your far right, is the immediate past Chairman of the Association of Military Banks of America, and the President of Eisenhower National Bank at Fort Sam Houston, Greg Oveland. Greg's bank is also an Outstanding Bank of the Year Award recipient.

So I encourage you to read the biographies of each of these individuals, not during the course of the presentations but during the break, and you'll see that a wealth of banking experience has been brought to bear on the topic for this conference.

Now, these bankers' commitment to our men and women in uniform and their families is representative of all of the military banks that provide financial services and support to the troops. And the AMBA motto is, "AMBA supports our troops." And I've been with the association for a brief period of time, but one of the big rewards for me is to watch the commitment and to see what these folks do, and others like them, to support our men and women.

And with that, I'm going to turn it over now to Jay, and he'll begin the presentation on the specific products.

Thank you.

(Applause.)

MR. DREIBELBIS: Thank you, Ege.

Let me see -- do we have a slide? There we go. Actually got it working. That's great.

It's kind of a scary thought when you look across the audience and you see this many bankers and regulators all in the same room. That's frightening.

But, Chairman Bair, thank you so much for having us here today. We're excited about the opportunity to share what we're doing for the military in our own places of business.

First, a little bit about Fort Hood National Bank, six-time Defense of Defense Distinguished Bank Service Award recipient. We're very proud of that, and most recently recognized in September of this past year for our efforts during 2005. We have seven on-post banking centers that are -- and two of those are in AAFES locations in PXs which are open seven days a week from 8:00 in the morning until 10:00 at night, and 67 on- post ATMs.

Now, some of you may not be familiar with Fort Hood, but Fort Hood falls in the heart of central Texas, 355 square acres -- I mean, square miles of land mass, which is bigger than the District of Columbia. So a huge facility and home to some 50,000 soldiers which we try to serve on a daily basis, and we're excited about that opportunity.

As Sandra mentioned earlier, many of those soldiers are young and under the age of 25. And because of that, we recognize some special needs, and because of that we've created some programs that we think fall in the category of affordable and responsible short-term loan products. And I'm going to talk about a couple of those today.

The first one that we had that we want to talk about is the housing assistance loan, and when we tried to work with our command group and identify specific needs that the soldiers might have. Starting back in June of 2004, a soldier eligible for on-post housing at Fort Hood is required to pay a pro rata share of that rent within 24 hours of being notified that they have available housing.

Now, as we mentioned before, when soldiers are young, and at that particular age, have not accumulated any type of savings, they need the ability and the resource to be able to get that cash quickly.

And in some other situations, unlike their civilian counterparts -- and I always use my children as examples -- who can do a -- go and get a part-time job or work at night, mow a couple of yards or do a garage sale. Our military personnel don't have the opportunity to do that. So they need resources that can take care of them quickly.

The housing assistance loans are made up to $1,000 with affordable repayment terms, 12 months or less. We have to have a quick response time and closing time and funding time, so it has to be done within 24 hours. No collateral required, and most of these individuals, since they have no credit history at all, this helps them to build credit.

One of the important aspects of any loan program that we have to the military, or to anyone, is communication. And in order to do that, so that they know that it's available, so that they don't go to an alternative source -- so we work directly with the on-post housing advisors and provide them with information about housing assistance loan programs, so that they know at the time, that they notify the soldier that there's housing available, that there is available financing for them with the bank on post.

The next category we have is overdraft repayment loan. And I know from reading some of Chairman Bair's comments in the past overdrafts are not a popular topic. But, unfortunately, when we're dealing with young people, as we talked about that are 48 percent of soldiers under the age of 25, they make mistakes.

They have temporary financial needs, if they decide this is the only alternative that they have, or back again making mistakes, which we all do from time to time.

They need assistance in being able to get out of the cycle which is created if they get into the overdraft and then they find their next paycheck puts them back in the overdraft with routine experiences. And as I said before, they don't have the same resources that our civilian counterparts have to get out of that cycle.

Because of that, we feel like it's extremely important that we provide them with a low-cost alternative. Our overdraft program repayment loans have the ability to help them avoid additional fees, not only additional NSF fees, overdraft fees, but actual fees that they have for merchants and fees that they incur throughout life whenever they're in that kind of a situation.

It also helps to build his or her credit report, which they have none at that time. And we also provide educational products along with them, and we think that education is very important, and I'll speak to that in just a minute. But we provide them with counseling and assistance on getting their account back in line and getting them back on track.

The idea -- this is creating a long-term customer that can benefit both the bank and themselves.

Communication on overdraft repayment loans is a tricky one, and one that I'm sure will be talked about, because it's not actually something that you want to put out there on the wall and encourage people to overdraw their accounts and then go into a loan program. So we do it after the fact.

When an individual gets into the overdraft, we have ticklers that are built in place, so we know when to call the customer and say, "It appears that you have a problem that you can't get out of on your own. We'd like to offer you a solution." We do that in both oral communication, and we do it in written communication as well.

The last program that we have is a small loan program. Many bankers around the room are thinking about the minimum loan amounts that they have and how difficult it is to make money at small loans. We know the last I think functional cost analysis the Federal Reserve did was in '99, said the cost of booking a loan was over $150, and then another $19 a month in servicing. So when you put the math to that in small loan programs and affordable products that could be profitable, it doesn't work real well sometimes.

But we've identified some ways that we can provide a product that we think is needed out there for the military, and sometimes we have to look at it from the standpoint of investing in the future in trying to build a customer that's long term.

We have a program that we call Flash Cash, which is a loan program that's $50 to $500 with monthly installments from four to seven months. Finance charge as low as $19. Now, I know that some of you mathematicians out there are already computing that $19 on $50, and we'll talk about that later on, but it's a relatively low amount when we compare it to the alternatives that are out there.

The product saves the soldier from having to spend more money borrowing from high-cost alternative sources. In addition to that, one of the most important things that we can do for soldiers is help them to build credit and establish credit, so that they can enter into more traditional banking products and loan products.

It doesn't have to be renegotiated monthly, as some of the alternatives would have to be. It does not require surrender of personal property, as some of the alternatives have. And it doesn't require collateral.

It's extremely important that we provide media coverage out there for that, because it's not the traditional loan products that you see advertised. And they're looking and their traditional idea is the place that I can get $50 to $500 is not from the bank. It usually is from an alternative lender of some sort.

So we provide media advertising especially at critical times of the year, during holidays, during -- slightly before deployments to make sure that the customers, that the soldiers know, that it's available.

We also think education is critical, and we -- any time that a soldier takes one of these loans we actually have an additional disclosure that we provide to them, educating them and encouraging them not to use this as a long-term alternative for their financial needs, because it is very expensive, and that they should seek other ways of taking that and correct their financial condition.

I talked before about how important education is, and we take that very seriously at Fort Hood National Bank and have several financial literacy programs. In fact, during this past year we have been working with the command group and have actually made presentations on financial readiness to over 46,000 soldiers and their family members.

And we do that in a number of different ways. We do consumer affair briefings, where we actually work with in- processing and out-processing soldiers, to help to make that transition either into the military or out of the military easier. We talk about automobile financing. We talk about automotive repairs, some of the door-to- door sales and telemarketing schemes that can befall them, budget and account reconciliation, and establishing and protecting your credit.

We also do pre-deployment briefings, and certainly in recent years that has been an extremely important part of our job. We have soldiers at Fort Hood, both in the 1st Cav and 4th ID, who are deploying to Iraq and Afghanistan on a regular basis. And right now we're going through that transition again.

So in pre-deployment briefings we talk to them about the advantages of online banking. We talk to them about preparing budgets and deployment accounts and preparing for the aspects that they will face while their loved ones are deployed in foreign markets.

We also do rear detachment officer family readiness group to try and prepare those that are left behind for the ability to take care of those unforeseen problems that always seem to befall soldiers while -- or their families while they are deployed.

We provide adult education programs. We have bank representatives that conduct a one-hour class on the FDIC Money Smart Adult Education Program, which is an excellent product, and soldiers and family members take advantage of that to learn how the credit scores -- correcting mistakes on their credit reports, and also maintaining good credit.

And probably the most important, or at least we feel like the most beneficial that we provide out there, is our work with the command financial specialists. We have bank representatives that host classes with every command financial specialist to provide financial readiness, information, and tools that they can use to take back to their individual groups.

In addition to that, we have an entire department, which is liaisons of banking professionals that stand available any time to assist the command financial service people in taking care of the needs of their soldiers regardless of where they bank, and helping them to reconcile their accounts and make plans for the future in budgeting.

Education is extremely important, and we think it is an important aspect. So a combination of innovative loan products and outstanding educational opportunities, and I think Fort Hood National Bank, and we're proud to say that we live up to our motto, and that's "serving those who serve."

And with that, I turn the microphone over to Don Giles.

(Applause.)

MR. GILES: I am here to today to talk about a program that we developed in 2003. But, first, I'd like to talk a little bit about our bank.

Our bank is a privately-owned bank. We specialize in military banking. We're only located on military installations around the country. Our average assets are a little over $700 million. We serve all branches of the service. We serve Army, Navy, Air Force, and Marine Corps. We have 55 branches on 30 military installations in 17 states across the United States.

Other bankers kid us about being the smallest bank that is located coast to coast. We have -- we're on military installations in New Jersey, Florida, Texas, North Dakota, California, and Washington. So we're kind of spread out.

Approximately, I would say, 95 to 98 percent of our customer base -- these are active duty dependents of or retired military. So we are really a true military bank in that we are located only on military installations. So that's a little background on the bank.

What I'm here today really to mainly talk about -- I want to talk about a few other programs we have -- but really is our workout loan program. And this program gives a service member an opportunity to work out of debt through a structured repayment plan.

On Saturday mornings, usually our senior executives and myself spend that time kind of brainstorming on what we can do, what's going along good at the bank, what's not, and I guess in early 2003 we started looking at a number of our customers that were -- check-cashing places were bringing in on paydays, and just stacks and stacks of checks of our customers, and cashing those checks on payday, and thus causing the account to go overdrawn again.

And we also have a mechanism where we monitor overdrafts on our accounts. And we wanted to come up with a program that -- could we offer something to these folks so they wouldn't continually be overdrawn or go to the check-cashing or payday lenders and offer an alternative to that.

This was something that we had to think really kind of hard and long, because, well, how would the OCC, our regulator, look at this, because if we would be making a loan to somebody who really wouldn't qualify from a safety and soundness perspective, but at the same time we felt like we needed to do something, because it was just churning over and over again.

So we came up with a plan. I challenged our senior lender and consumer loan department to come up with some ideas. We tweaked that some and went to our board of directors, who is made up of retired military folks and other civilians who are non-military. And they left -- blessed the program and told us to move forward, so we started the program in the summer of 2003.

The workout loan program is an alternative, as I mentioned, to a payday loan. It's a new start. It helps borrowers regain their financial integrity, to try to get them on an even keel and where they can make their payments on a regular basis.

It provides an opportunity for the -- an opportunity to pay back debts and to rebuild their credit. We tell our borrowers that if they will repay us on time, then this is reported to the credit bureau, and this is going to raise their credit rating, and, thus, in time their credit rating will increase.

So loan decisions are not based on the credit report. If you based it on the credit report, you're going to see collection items you're going to see chargeoffs, you're going to see terrible past dues, and it's nothing most banks or credit unions would approve.

Loan payments are automatically debited from am Armed Forces bank account. We ask the customer to have an account, either a checking account or a savings account, with us. We want to continue to monitor the deposit side, because if we don't monitor the positive side as well as the loan side, then they're going to get right back into the cycle again.

So we're real diligent on our collectors about watching that to make sure they don't fall back into the cycle. Sometimes we have them in a checking account, we've got to move them to a savings account, because they continue to write checks.

Paid loans are reported to the credit bureau. We've already talked about that. It will improve their scores. Monthly payments are designed to fit their budgets. There is no point in making these loans if you're going to make the payment such that the person can't afford it. So we're real conscious of that. We try to structure payments where they will not cause the person to be overdrawn.

Again, they must have an account with us with a direct deposit relationship. Borrowers must maintain adequate funds in their account to make the loan. That's pretty obvious. Borrowers must keep their Armed Forces bank account in good standing with no overdrafts. They sign an agreement at the time that the loan is made that they will not overdraw their account, so they won't fall back in the same pattern.

Borrowers can take up to 24 months to repay the loan. This is really depending on the amount they borrow. We will -- we have had -- made some exceptions where we've gone longer where the amounts are larger. Loan amounts are generally no more than the one month's gross pay.

A workout loan is a fixed 18 percent. There is no application fee, no closing fees, no other fees. It's just a flat 18 percent, and there is no collateral required on the loan.

The program itself, let's see, started in the summer of 2003, and during this period of time we have originated over 12,000 loans, about $13.5 million. It started out that the average loan was somewhere around $900 to $1,000, and that has gone up, and today we're making somewhere around a little over $1,000 on the average loan.

Some other initiatives that we have, I'd like to just mention those. We do consumer education classes, either one on one or in briefings, and on the installation. We work real closely with the installation on these education classes; the same thing that Fort Hood does.

We have increased our debt-to- income ratio. We used to be at 36 percent, but we have raised that to 41 percent, so more people will qualify for loans. We also offer a low fixed rate credit card that could go as low as $300 for the low income folks.

We also have a preapproved ready line. That's really for more of our larger balance customers, where we preapprove them for larger amounts, so if they write a check and it's -- rather than overdraw their account, it would draw against this ready reserve. And then, when -- they can repay it either over time or they can -- whenever they come into their money, they can pay it back single.

And then, we also have a six-month starter loan that we offer to folks who have no credit whatsoever. And this has been pretty successful, too. So those are just a few comments about other products we have.

And rather than me get up here and continue to talk about the program, I think the best thing I could do is probably just read a few comments. We get thank-you letters from customers, and let me just spend time just reading you a few comments. And this is from an Army -- I don't know the rank, but I won't get into the name.

"In these times of struggling financial situations for veterans and their families, it's nice to know that there are people like you to help them. The introduction of this workout loan program is an excellent concept, and I believe you are the only bank that offers it."

Another letter, "Thank you so much for your help that you provided me. It's not very often that in this fast-paced life that we live that people are concerned and thoughtful enough to get the job done. You have given me the ability to face this surgery with confidence that I don't have to worry about paying bills."

The last letter, "I am very thankful for Armed Forces Bank. Without the workout loan, it's going to allow me to move forward financially and emotionally. I truly worried if I would ever get out of the consistent advanced cycle. You and your team were excellent and supportive throughout. God bless Armed Forces Bank."

This loan program that we've got is not the answer. It's a big problem out there. But maybe it's a small step forward. All these panel members up here have other programs that are similar, and we're glad today to share what we do.

Thank you.

(Applause.)

MS. SNYDER: Thank you, Don.

I've been reminded several times that I -- my speaking, I am very soft-spoken. My family, especially my husband, would strongly disagree. So --

(Laughter.)

-- if for some reason you cannot hear me on the back row, just wave or do something.

First National Bank has been a partner with Tinker Air Force Base even before it was an Air Force Base. Back in the early '40s, it was Tinker Field. That's when American State Bank, which is now First National Bank, family-owned, by the same family then as it is today, began their partnership.

Tinker Air Force Base is the largest ALC, Air Force Materiel Command, and Tinker's largest organization. The facility provides depot maintenance, management expertise, product support, supply chain management, as well as installation, services, and informational support for 31 weapon systems, 10 commands, 93 Air Force Bases, and 46 foreign nations.

More than 14,000 civilians and military personnel perform the mission of the ALC, and another 10,000 people perform the missions of many associate organizations that call Tinker their home.

Together they make Tinker Air Force Base the single site employer in Oklahoma with an annual payroll exceeding $1.1 billion, and the statewide economic impact estimated at more than $2.79 billion. Just a little background there.

The mission, the need in education, is what drove us to prepare the program we call Second Chance Lending. With the numerous commands on Tinker, as mentioned, it became evident that Tinker's leadership needed something to help their troops with their finances. There seemed to be a large and increasing number of military getting larger in debt.

The problem with just consolidating a loan just to pay off their debts, there is no follow-through. And what you're going to hear it today, you've heard it before, and you're going to continue to hear it throughout -- it's the education.

The Tinker leadership -- they needed financial education. These troops need the education. They needed a place to send their troops for some type of consolidation loan, but also needed the education to follow it. There was a need to help relieve some of the pressure from our leadership, so they could focus on their mission.

They were spending too much time helping their troops with their finances and having to answer calls from collectors. Second Chance Lending was designed for Tinker's leadership. It was designed for those who want to have a military career, career goals, and professionals with ethics. They are committed, and they are focused.

But because of a financial debt, due to circumstances beyond their control, they cannot get ahead. The reason this was designed for the leadership is because they know their troops. They know the person's background, family, their work, their job. Is this someone that needs that second chance? Someone that if they could not get the help most likely would end up leaving the force, getting into trouble, possibly start failing at their job, their relationships, their home?

When you're in debt, depression kicks in. And when that happens, it's very hard to get back your self-esteem. If there is nobody backing you, then why try? A lot of times that is where the mind-set goes is into the depression. The troops need to focus on the mission at hand and not worrying about what collection company is going to be calling their superior.

These individuals that we want to keep in the military just might be our next first sergeant or chief at the next command. If they were to get a consolidation loan, if they were to try to get a consolidation loan on their own, nine out of ten times they would be declined because of the collections, the repossessions, credit scores, 500, 300, 400. They do not have the qualifications to qualify on their own.

Because of these conditions, they end up getting further in debt by getting more debt to pay the first part of the first debt. The loan program that we have is a minimum between $1,000 to $5,000. The history with the military on Tinker is that the minimum is to be about $1,000.

If the amount was less than $1,000, then we usually find another way to help them out, and that usually requires a session for several months of one-on-one counseling.

The process starts when their superior calls and sets up an appointment for that person. We go over their debt dollars, look at their monthly budget, if it's even possible to consolidate the debt. The program is not offered by the bank. The Second Chance Program is only offered by Tinker's leadership.

The program is written to their needs, and they're the ones that approve the conditions. We do not offer, nor discuss, the product unless we are contacted by the superior for consult. This loan is done as a short-term fixed-rate loan, no longer than their date of separation.

The condition of the loan is they have to open up an account with First National and have their direct deposit. It is an unsecured loan. There is no collateral, no co-signing. At the time of the closing, the superior, the military person, and our loan officer are all together.

Part of the loan requirement is the military member's superior and our officer sign a written agreement. The signed agreement basically states that this loan is being done only at the request of the leadership, that there is no other alternative, and the leadership of Tinker Air Force Base believes, because of the circumstances, that this military member deserves that second chance.

It further states that the superior is kept abreast of the troop's progress and, if needed, will help First National contact the military member, if for some reason contact has failed. Furthermore, the superior and the bank officer will let First National Bank know is that person is being transferred, going to be TDY for more than 45 days, or if anything unusual has happened within their life or their job.

The reason for that is because if something has happened within our life, our finances will always follow it. The signed agreement by the superior is basically what our collateral would be.

The document also states that the troop must keep their account open until the loan is paid in full, and during the entire time of the loan they are to meet with the loan officer, reviewing their monthly budget through this -- through to maturity.

They do not get just a consolidation loan to pay off their debt. They get the financial education monthly. At the time of closing, a monthly budget is worked out for their expenses. Each month the troop and the loan officer review their expenses, making sure they're on track, if they need to adjust the budget.

During this time, they are taught how to use a checkbook, what a checkbook even looks like, the register, how to balance that checking account. They learn about savings. Part of the monthly budget is applying money to a savings account if that's possible. They learn how banking works.

Furthermore, if possible, we apply more of the principal to the loan within the budget to get it paid off quicker. It's the education that's the most important part of the program. To be eligible for the Second Chance, you have to be referred by your superior, you have to agree and maintain the financial education process throughout the entire term.

The end result is that hopefully at maturity they have learned, during the life of that loan, financial management, so that they do not fall back in that circle of debt that we call the black hole.

Another reason the agreement was designed so the superior signs is not only to lessen the risk for us, but to show that military member that they have the trust and they have the faith in them. This brings back to their self-esteem.

It's amazing how when the loan is closed and everything is complete, their entire body language changes in an instant. Giving a consolidation loan, or helping someone with their finances just once, well, it doesn't work. That's just the quick fix.

By relieving financial worry, it helps with their mental and physical well being, so they can focus on the mission that we need them to focus on. Overall, that's the most important part is to have a successful life.

We've had this program for almost three years, and to date it has been 100 percent successful. Also, there are numerous other programs, financial education classes are conducted, monthly/weekly on base at any time, any day, nights, Sundays, Saturdays, whatever the need is. We stay in close contact with all of the commands, our first sergeants, or chiefs. What they need, we do, and we work that out with them.

Thank you.

Dawn, I think it's your turn.

(Applause.)

MS. BANNWOLF: Well, Chairman Bair, thank you so much for having us up here, and we're really pleased to be part of this panel.

I'm with Bank of America Military Bank. I think you probably have heard of Bank of America, but many of you probably didn't know we actually have a military bank segment that's headquartered in San Antonio, Texas, Military City, USA, and was founded back in 1920 by two Army officers, because they just felt it was a big challenge to meet the banking needs of this highly mobile group of folks -- people serving our country in such an honorable way.

You also may or may not know we have especially designated military banking centers. Some of them are located on installations. There are 34 such centers. We also have facilities in the State Department, in Census Bureau, as well as the Pentagon. So while we serve outside the gates at places like Fort Sam, Fort Riley, Fort Stewart, we are also honored to be the on-installation banking center as well.

About 200 of our retail banking centers, which may be located near a military facility, also offer these special military bank products and services. So when I talk about rates and things that we offer, you may not find those in every Bank of America across this country. They are going to be in specially-designated ones.

So you might say, "Well, how come that woman told me that there was a loan for 12.99? How come I'm not seeing that?" Well, that is why. But if you looked on our website, www.BankofAmerica.com, and then do forward slash, military, you will see information on all of our products and services, loans with our rates noted as well.

We also have the honor of operating the Department of Defense's overseas banking contract. That's an open bid process, and we currently operate more than 100 locations overseas -- Germany, Okinawa, Gitmo, or Guantanamo Bay and soon Italy.

We're everywhere the Department of Defense has asked us to be -- United Kingdom, Okinawa, Germany for example -- so we're very pleased to work with a number of the banking liaison officers here in this facility as well as we work to serve the soldiers or sailors, airmen, and marines and their families.

I think what's really important here is the commitment and the passion that you're hearing from the folks on this panel. We're here because we want to serve those who serve, to use one of my colleague's bylines. I think that's really important for you to understand.

Are we in it for the money? As you can hear the returns in the numbers that Don was able to quote, there is not a lot of money to be made, but it's in salvaging the relationships and doing the right thing and doing things that Tammy mentioned -- working with those commands -- because they're there to take care of those soldiers or the airmen or the marines or the sailors, depending upon the branch of service. And we want to be an extension of that and offer additional help.

Now, Bank of America Military Bank offers many of the products and services that you've heard discussed today. We're at the halfway point, so I can kind of point to them and say, "Yes, we do all that, too." There are some additional things as well. We, too, have unsecured loans of $500 or more, and I'll just quote you some stats. This is the low- tech side of the table, so no powerpoint!

Current APR of 12.99. If you have loans greater of $2,000, we reduce that APR to 10.25. But there are no fees associated with the loan. There are no prepayment penalties.

The key product we want to discuss is our unsecured starter loan for junior enlisted. These are young men and women just getting started with their careers in the service, and so whether you're in the service or not young people in general have a challenge getting credit. And so we're being mindful of that and working with them to offer them an opportunity for lending in a positive environment.

We also have a first-time auto buyers program. If you're a young kid, you want a car, you want a fast one, so we want to make sure you have a loan product to do that. Obviously, we want to have direct deposit and a guarantee of repayment.

But we also have a condition where we want you to buy it from an auto dealership. You probably go, well, why? Because there are too many things going on that it's tough for those service members to check out, is it really a good deal on -- just as an example -- on eBay or maybe at that corner lot where they just have a couple cars out there saying "for sale"?

We want our service members to be safe when they make that kind of investment in purchasing a new car.

But something that FDIC particularly had asked me about was our credit line, and that's available for overdraft protection for our checking accounts. Now, the maximum amount that we offer on that is $300, but it's revolving credit. So as you pay that down, obviously that frees up more available credit.

The APR on that is 11.99. It's a big difference than some of the other numbers that you might hear.

We want you to pay a minimum of three percent, or $25, whichever is greater. We're blessed that we have more than 16,700 ATMs, 5,700 banking centers across the country, and online banking, because we have a highly mobile group of people. They like to bank online. This is all about convenience for the service member.

If you're deployed and you're in Afghanistan, you're in Iraq, you're in Bosnia, you don't want to have to be worrying about your banking. You've got too many other things on your plate, too many other things to worry about. And if we can relieve those apprehensions, you're going to get letters that Don cited talking from his customers, that all of us up here at this table have received, saying thank you very much for taking care of us.

When I sit and I look at other things that I have heard Chairman Bair mention, encouragement of savings -- savings is incredibly important. A number of people in this room have played a leadership role with Military Saves, and, again, encouraging our service members to set aside some dollars and cents. It's not just service members. It's everybody in this country who could set aside a few more dollars.

And as a result of that, Bank of America's military bank, we've got a separate product with a couple checking accounts. If we can get that service member to give us their direct deposit, and they put aside 10 bucks a month for six months into a savings account, we will match it and give them $50 bonus. And if they're further along in their careers or at another stage in their lives we have an account if they put 100 bucks aside, we'll match it with $100. You may have seen some pretty incredible commercials lately, and that's that "Keep the Change" program. That's kind of fun, where you use your debit card, and instead of getting charged $5.17, you get charged $6. That additional money goes into a savings account, and we match that for three months, and then after that five percent over the year.

So there a number of things, as we are trying to encourage that savings habit, because things come up. Maybe something happens to your car or something breaks down, and you just don't have the cash. Maybe the compressor has gone out in your air conditioner. Who knows? But this way you've been able to kind of set aside some money, and I think that's important, because we can incent these service members to save.

In closing, you heard a lot about financial readiness. All of us are available, at the request of the commands, to provide this kind of training. It takes shape in a lot of different forms, and that is what is kind of neat about this panel -- you get to hear what different people are doing.

And you have people that are offering real basic budgeting. This is -- as Tammy said, this is what a checkbook looks like. Just because you have checks doesn't mean you have money. Real basic kind of things that you need to go over. But that's not just limited to service members. That applies to many people in our country.

I also know that you'll see folks at this table who are not here to just work at a bank because it's a good job. They have a passion for serving the military. We have people that get up at all hours of the day and night to go meet planes at Fort Campbell as the 101st came back. We have people that stood in line to pack things to send off to Iraq for the 3rd ID at Fort Stewart during one of their deployments.

We pay attention to all of that. We do it because we want to, because it's important, and it's for the respect that we have for those that have given so much and continue to give, to serve our country. So it's not just a job for us; it's something we believe heavily in. Many of us have ties to the military, and we're just honored to be able to be of service.

Thank you very much.

Greg?

(Applause.)

MR. OVELAND: Thank you, Dawn. I represent Eisenhower National Bank. We're part of a small independent banking group in San Antonio, Texas, and we've been proudly serving the military since 1941. We offer worldwide military banking services to the military regardless of rank or your branch of the military service.

We currently have and serve the five military installations in Texas. We all here presenting today have been competing with one another, directly or indirectly, for a number of years. And none of this information has been shared amongst ourselves until preparation for this meeting. And I think that you will have noticed that we're all taking notes on one another here as well as you have.

(Laughter.)

But I think you'll notice there's commonality in some of the products, because we've independently identified some of the common issues and needs of our military customers. And at Eisenhower Bank it is no different.

I have two products, and the first product I'd like to present is our First Loan Program. Basically, for many, many years, we noticed that in particular, our lower E grade -- those are the privates, basically, up to the PFCs -- that they were having difficulty getting credit extended them, their first credit experience extended to them.

And so we developed a loan whereby a young man or woman in the military can come in and borrow unsecured their first loan experience with no guarantor, co-signor, or collateral. We took the position that just because someone does not have any credit doesn't necessarily mean that they're a bad credit risk, and so why wouldn't we give them a chance? And we did.

Our First Loan Program process starts first by the specific market manager or credit underwriter of that military installation personally educating this individual one on one regarding what establishing good credit means, how it is done, how it affects your borrowing costs, your insurance costs in the future, and, obviously, your lifestyle in the future.

We also educate them about the impact that poor credit can have on their military careers, that poor credit can result in them not being deployed, which was mentioned earlier, and it can also jeopardize their security clearance, which is required in many of the jobs. And if that is not maintained, that security clearance, then they basically run the risk of being discharged from the military service. So it's very, very important for them to keep their credit at an A plus rating.

After this financial counseling, there are two types of this short-term loan that we offer. One is an unsecured loan up to $1,200, the interest rate is 16 percent, it amortizes monthly over a 12-month period. We do direct debit their account, and we do require that they have their direct deposit with us. But they do not have to have any credit prior history, and, again, no collateral, no co-signor, no guarantor.

The other loan is a secured auto loan. This would be their first auto that they had financed. It's up to $12,000, the interest rate is nine percent, it amortizes monthly for 24 months. We've actually extended that a little bit beyond the 24 months.

Again, we direct debit their deposit account that they have with us. There is no credit history required again. The auto is used as collateral, and there is a requirement of 10 percent cash put up -- basically, a 10 percent skin in the game. And we go up to the NAD value of that vehicle.

The next product I want to present is Eisenhower Bank's Second Chance or Overdraft Workout Account. And this account was developed to help the customer who had mishandled their checking account to the point where a negative balance was consistently being carried in that account, and their overdraft limit was constantly being drawn upon throughout the month to cover checks written. They're in that cycle.

When the customer reaches this critical point, they no longer have their full take-home pay to cover their expenses, living expenses, since their overdraft is set up to automatically be paid first when their paycheck is deposited at the beginning of the month.

In essence, the customer will be forced to live on considerably less money than what they are paid. Consequently, many of our customers become overwhelmed by the situation and seek to borrow money elsewhere, many times a payday lender or other such creditor at rather high interest rates.

Or some of them have moved their direct deposit to other financial institutions before this bad credit report can be made by the bank, and the bank -- our bank -- will be left with the position of losing the customer, number one, having to charge off the funds advance, pursuing the customer for non- payment, and thus damaging their credit rating. This is obviously a lose-lose situation, and it's just not something that we wanted to tolerate.

So we developed a solution that is, again, called the Second Chance Overdraft Workout Account. I think it's best illustrated by this example. The example is a customer with a direct deposit of pay of $1,000, who has a constant $600 overdraft amount, they're in the red by $600 on a constant basis, as a result they're living on not the $1,000, but the $400 left after the $600 overdraft is paid at the beginning of the month in their pay.

Our Second Chance Overdraft Workout Account works by moving the negative overdraft balance -- in this case it's the $600 that I'm mentioning -- into a savings account at the bank. Obviously, since it's in the red, it's not going to accrue any sort of interest, but it is into a savings account that we set up for them.

What we do, then, is the balance is then paid from direct debiting the customer's direct deposit of pay checking account. When they get paid, we debit it $200 each month for three months, and the customer receives at -- their next direct deposit pay they receive out of that $1,000 they now receive $800 versus -- to live on versus the $400 that they had been living on and really having difficulty living on.

Once it's paid in full, a smaller overdraft account balance -- or, excuse me, overdraft limit is given. Normally, it's $150, $200, or so, depending on the circumstances. But not enough -- as we say in Texas, not enough rope to hang themselves. And we allow them to keep the safety of the overdraft service, but at, again, a more manageable level, and the savings account is able to be retained by the customer past this period.

This account was designed to help the customer really to regain a solid financial standing and retain them as a customer. There are no fees, there is no interest, there is no cost to the customer for this account. We merely have designed this to retain the customer and to get them out of this vicious cycle that many of them have fallen into.

We have special computer reports and designated personnel who monitor our customer accounts daily on a proactive basis to identify those customers whose deposit accounts may indicate the characteristics of difficulty in managing their checking accounts.

Once identified, we quickly attempt to contact these customers through various means. First, letters, which quite frankly is probably the least effective, the phone calls is next, the cell phone calls is -- follows, e-mails we will send, and we even now are starting to use text messaging to contact these young men and women.

When contact is established, we -- our trained staff will explain why they are being contacted and offer the Second Chance Account. At the same time, we offer the financial counseling, which is part of all of the programs I think that have been presented, is explaining to these young men and women about the dynamics of credit and dynamics of account management and all. Very, very important element.

We offer them this individualized counseling, and we've had a number of responses. Most are very thankful, most will take the extension of overdraft workout account. We have actually had a number of cases whereby that the young men and women will break down in tears. They've been living in this hell of not knowing what to do.

Most are first generation bank customers in their families, and we're able to -- they can't go to their families, because their families don't have credit. In fact, a lot of their families are asking them for money. What we're able to do is provide that assistance and get them out of it, give them that ladder in the well as they say, to climb out of it, and so we've had a number of great responses.

I will tell you that we do have some that actually tell us to mind our own business, because they'll manage their account how they wish to. So it's not always successful. There are those that are rather stubborn.

However, since we started offering this account in 2003, we have set up over 400 of these accounts and a retention of those first that have taken it back in 2003 and 2004. Our retention rate on those people, even as of today, is over 50 percent. They've stayed with the bank. In the old days when we didn't have this account, we lost all of them. So we have a retention rate of over 50 percent.

And to our surprise, the savings account that we have for that same group of people, we've had them -- we've had 25 percent of them retain that savings account and continue to make deposits into it. So we've developed now not just one account, a checking account, but also a savings account, and that savings account has provided the vehicle for them to save money for their future and for their unforeseen costs.

We are -- all of us here want to thank Chairman Bair for having us up here, and the FDIC. We are very proud, as you can tell from all of us, about the military. And also, I'm very thankful of the fact that the FDIC has come forward with this issue, and we're airing it today. And if any of us can be of any help, we're certainly here waiting to help.

So thank you.

(Applause.)

MODERATOR THOMPSON: Well, that was really great. That was very inspiring. And what I'd like to do is open it up for questions. I think we have microphones set up throughout the audience, so if you have questions please raise your hand and the microphone will come to you. But I would like to ask a question first, if you don't mind.

We've talked a little bit about some of the positives of these programs. Can any of you speak to the collection procedures? What happens when someone doesn't repay the loan? What kind of contact is made with the military installation? How do you handle -- what are your procedures for non-payment of these loans? And I'll throw that out to anyone on the panel.

MR. GILES: I'll jump in and answer that question. That was one thing I wanted to cover when I did my presentation but I left out. The program that we started, we are having around a 75 to 80 percent success rate. In other words, we're charging off around 20 to 25 percent. And when you think about the customer base and the lack of literacy in the financial management area, we feel that that's a success.

Is it a 100 percent success? No. But it is a step forward in the right direction, and we see that as a big improvement.

MODERATOR THOMPSON: Okay. Anyone else?

(No response.)

I just had one quick question, and that was for Dawn. On your savings account -- is it a restricted savings account? Can the military personnel access the savings at any time, or do they have to maintain a certain amount for a period of time?

MS. BANNWOLF: Through our Liberty and Liberty Plus products, that is just a "regular old savings account." And it has to be an automatic debit into that account, those $10, and then it -- and they have to maintain that for that six-month period, and then at the seventh month is when we add the bonus to the account.

And after that, technically, yes, they could close out that account and say, guess what, I got a great return on my money, but we're, of course, not encouraging that.

MODERATOR THOMPSON: Okay. Great. Okay. Questions?

MR. LOWERY: Yes, I have one question. Tammy, you mentioned in terms of your loan dealing with the military leadership -- I'm Charles Lowery with the Center for Responsible Lending. We've done a lot of outreach to military installations on short- term lending, and it seems that the military members often go to the payday lenders, because they don't want their leadership to know about any of their debts. They are concerned about even though that would be a good source for them, they turn away from that and they go outside the gates to these lenders.

But your program really deals specifically with the leadership. How do you -- how does your program seem to overcome that problem where the service member doesn't want their leadership to know about their issue?

MS. SNYDER: Well, the one -- the leadership finds out about the debt from those payday lenders. They have already been there. They have already gone down that track, and there is no return.

Our first sergeants and our chiefs work just right in the neck with our airmen. You would have 2- to 300 airmen per one first sergeant or one chief, and their days are spent answering phone calls from collectors or payday loan companies or check cashing companies threatening to cut off legs. I mean, it just -- it gets really hard core.

So the Second Chance Program takes them from that hole that they already got to. So the learning process already started. They were there. They went down to the bottom. So we're taking all of that, wrapping it into one, so it's not like, well, I just got in debt, so let me see. They've hit rock bottom already. So we're getting them out of the rock bottom, and through the education process they've learned not to get back to that point. I hope that answered your question.

PARTICIPANT: Dawn, you had mentioned that your products are geared to specifically for the military, as all of you indicated. How do you see such a product working out in the general marketplace, not working with military personnel but working in general out in the public? Do you see a similar product being offered out in the general marketplace, as you offer with the military?

MS. BANNWOLF: I'll speak directly, first, to the depository product. As you can see, that Keep the Change -- and that has been rolled out nationally to any and all folks that would take advantage of that. I think we definitely are taking a look to see how these different programs and products that we're able to offer might play out into the greater community.

At this point in time, can I point to a specific initiative? No, but we're continuing looking at that as we reevaluate all of our products.

MR. SAELI: Jeff Saeli from Columbus Bank and Trust at Fort Benning, and my question is in general for the panel. You've described some fantastic products and services, many of which we have considered as well.

One of the problems that we face by the virtue of the fact that we are training-based with a highly transient population is communicating with our customers once they leave the installation, which the vast majority of them do. And what we're interested in hearing is if any of you have had a similar experience in how you resolve that communication issue with the transient customer population.

MR. GILES: Yes, that's a problem.

(Laughter.)

You know, we face the same issue. As I mentioned, we have 55 offices on 30 installations around the country, and the one thing about the military is they are transient, they are moving, always moving. We've got customers located throughout the world.

And we -- years ago we tried to start building a real good database on e-mails and trying to communicate with the customer through e-mail, but we do, certainly, the mail, and by phoning. But I think probably of late, the last couple of years, going through electronic means of communicating with the customer has been the best for us, and most successful. But it's an ongoing problem.

And, secondly, let me address -- the gentleman asked a question about the -- we are part of a privately-owned five-bank holding company, and we kicked off the Workout Loan Program on the civilian side. And I'll have to say, it's not as successful as the military side. We're having some more chargeoffs, but we are doing it, and we feel like it is successful from a standpoint of, one, keeping a customer a little bit longer, and the percentages.

I think we drop around 5 to 10 basis points in the chargeoffs or increase on the civilian side. So we are doing that, and we are into it for about a year, and now a year and a half.

MR. DREIBELBIS: Back to the question, we also have, at Fort Hood, a very mobile and very constantly moving and changing group there. One of the things that we recognized, though, in recent years with deployments continually happening, the soldiers are away from post more than they're at home.

So electronic means to communicate with those soldiers is critical. And also, having the ability to provide 24-hour service, either through security e-mail or through telephone centers in order to take care of those deployment needs, is critical for you to have a successful operation there.

And also, speaking back to the products outside of the military group, we are in a similar situation. We have a number of branches across the State of Texas that are sister banks to what we currently have there, and we offer similar programs.

But one of the distinct differences between the military and the civilian counterparts is it's a whole lot harder to quit your job with the military and walk away. And yet if you're working for, you know, one of the major retailers out there, they have 100 percent turnover on the front line. So changes in employment make some of the programs that we offer in the military much more difficult to really put into play on the civilian side.

MR. OVELAND: I might add before we move on is that with regards to communication -- and it's going to come out in the American Banker here, so I can air this -- is that Eisenhower Bank is beta testing a mobile phone banking system, whereby that most of our young military men and women, the first thing that they buy is a cell phone if they don't already have one.

And the cell phone allows either communications through -- if it's internet- enabled, it can get e-messages or you can get text messages. And we're -- we have a list -- as Don was saying, we have a list of e-mail addresses that can be used for the communication. But we feel like with this mobile device that will allow us really a chance to keep in touch with those young men and women.

The product also allows for alerts, which can alert a deficiency in a balance or a check clearing or a check "not coming in" as a deposit, and what no. So we have great hopes that this will help fill some of that void with regards to the communication.

MS. GUERRERO: Yes. Good morning. My name is Lou Leon Guerrero, and I am from the Bank of Guam, and I did travel the farthest. We are like 12,000 miles away from D.C.

(Applause.)

Thank you. We also have two civilian-based -- two military -- big military bases in Guam. And we are expecting more military with the relocation from the Okinawa base. And we are also the only local bank that is located in the military bases. We have one in the naval station and one in Anderson.

We do have a consumer loan program, which is -- which we allow a minimum of $500 up to $25,000 unsecured loan at a 9.75 rate. No application fees, no closing costs, and so we think we have a very good consumer loan program which is a civilian, but the military can participate in these loans.

But they do have to have some qualifications and eligibility, and what I hear is going to happen is that we would be then lending to subprime borrowers. And I wanted to ask the panel members up there, how do your regulators treat those loan programs? And what impact does it have in your asset quality rating?

I also wanted to say, before I let go of the microphone, that as far as our collection process is in working with the military, we have a good working relationship with the commanding officers of those bases. And when a military individual is delinquent, we pick up the phone and call the commanding officers, and they actually just ask us: is it a banking issue? And we say yes, and they get the person to come in, and they actually do pay.

We also get information from them in terms of when we have to locate them. But I do want to be able, as a bank, to provide this service to our military people. And we do want to take the business opportunity also, because we feel it's going to greatly increase the economy of our island. And an increase from 9,000 active personnel to about 20,000 active personnel is a big increase in our economy potential.

But I do want to know how your regulators treat them, because we want to be able to not upset our regulators.

Thank you.

(Laughter.)

MR. OVELAND: I can address from the Office of Comptroller of the Currency is that with the overdraft workout account that I outlined is that they specifically had an appointment with our chairman of our board talking about the fact that this was -- encouraged us to continue to offer the overdraft workout account, and felt it was the right thing to do. So there was support all around for it.

MR. GILES: We also are regulated by the OCC, and my philosophy is try to keep everyone informed. And when we came up with a program, that was one of our concerns -- how the regulator from the safety and soundness. But when you look at the number of loans we're making, and the dollar amount, it's somewhat I won't say insignificant, but it's a much lower amount than when you consider the larger commercial real estate loans and car loans and other type loans that you'd make.

And I think it helped us receive an outstanding rating the last two times that we've been rated. I think they gave that significant part. But also, I think they view that we're trying to do our part to help the consumer.

MR. DREIBELBIS: I'll go one step further, and I do think it's encouraged. We're also regulated by the OCC, and they encourage us to do things to help the soldiers. But from a safety and soundness standpoint, you also have responsibilities on establishing reserves. And the loss percentages on these are higher than what you experience.

And if on some of the overdraft type products that are rolling overdrafts into -- I'd really encourage you to visit with your specific regulator and talk with them about the merits of the program and how you structure it, and how you're going to do your reserve calculations, because I think that's critical, that you establish that in advance rather than doing it during an examination, because it never turns out like you'd like for it to.

(Laughter.)

MR. MOORE: I'm Jack Moore with United Southern Bank in Hopkinsville, Kentucky, which is near Fort Campbell, home of the 101st Airborne. We don't have a program. That's why I'm here. Can anyone on the panel tell me what your approval ratio is? Thank you.

MS. SNYDER: On our --

MR. MOORE: That's approval to turn down.

MS. SNYDER: On our Second Chance Program, we have not turned down any to date. And everyone has been successful, because it comes from the command.

MR. GILES: We also are at 100 percent. These are our customers, and these are situations where we would take a loss, and we're trying to work with that customer. We are -- we pay out some money, because they might have outstanding checks. But we're also covering losses internally, and we're trying to keep that customer to clean up their account.

In a couple situations, we work with a command, Army community service or Navy relief, where they will come to us with another bank or credit union customer, and they'll ask us to make a loan. And in some cases, we have actually paid out money to cover checks on other institutions. And so far, we are batting a thousand percent right now on that also.

MR. DREIBELBIS: I wish that I could say we were at 100 percent, but that's not the case. We do everything we can to try and approve loans for our soldiers that come in, but some of those are in such desperate situations, because of the alternatives that they have set. They need more help than what we can provide them. So we try and provide counseling, we try to do everything that we can, and we're approving the vast majority of those. But there is always going to be a group that has just gone too long.

So that's one of the reasons why I think when we talk about certainly the products are important, but the education is critical to make this successful of any small loan program, whether it's military or civilian.

And then, in addition to that, is advertising and communicating to make sure that they know that there is an alternative available to them other than some of the alternative sources.

So I think to get your approval rates up high you have got to provide both of those -- the education and the communication -- to have a fully robust program.

REAR ADMIRAL GAUDIO: You know, just a final comment. You've got to get your senior loan committee and your board to sign off on the program. They've got to believe, because there will be losses. You're going to have losses that are going to be much higher than what you normally have, but they've got to look at the big picture rather than the small picture.

And as long as they will sign off and you set aside a certain amount of money that you're realizing to risk and lose for the long term, and that's the way our board looks at things, from rather than a short-term view, they look at it from a long-term perspective.

MR. McDONALD: My name is Alden McDonald from New Orleans. We do not have a program for the military, but it is quite interesting to hear what you guys have gone through and what you have set up.

My question to the panel is that, can you share with us some of your delinquency ratios? I think one panelist did say that they had about a 25 percent chargeoff rate. I think I heard that. And if I didn't, please correct me. And also, some of the other financial management numbers -- for example, what is your average yield on this particular portfolio?

This would help us to at least begin structuring it from a cost point of view. And it sounds like the program is not very profitable, if profitable at all, but we would really be appreciative if we would know how much money we would lose on it going into the program.

(Laughter.)

So as much of that information that you could share with us as possible would be appreciated.

Thank you.

MR. OVELAND: I can address on our products. The first loan program that's unsecured we had to -- around 25 percent chargeoffs on that before we required the direct deposit. Now that we have the direct deposit, we don't have the number -- we're still taking some losses, but the unsecured loan is -- you're going to take some losses.

Obviously, like what Jay was talking about, the funding of the loan itself being $247, I think if you add everything together, we're much less efficient. It costs us about $400 and some odd dollars to book a note. So you're going to lose money on it.

And on the car loan that we have, we've had good success with that, because it's secured. And, again, the counseling that you do at the beginning is extremely important in your payouts. But we've had very good luck on that, and -- but, again, at the rate that we're charging it's break-even at best on the vehicle loan.

MS. SNYDER: I know our program has been so far 100 percent successful. Again, there is going to be a time where it's not. But our chargeoffs on the checking accounts are probably 25 to 30 percent, and those chargeoffs -- those are the dollars going to the payday loan companies and to other banks to try to pay those debts.

So it's on the DDA side, not necessarily on our lending side. And you're talking about profitability. There is no up front profitability, but we need to realize that it's your retention, it's the future, the end result of retaining this customer, watching their family grow, and keeping that relationship with that person. That is going to be your profitability in the long run.

PARTICIPANT: (Inaudible comment from an unmiked location.)

MR. GILES: Well, I was wanting to mention we have about a probably 25 percent chargeoff on the military side, a little higher on the civilian side. So you want to keep that. But I think Tammy made a real good point. You've got to look at it not only from the loan side.

You've got to keep it -- look at it from a retention on the DDA side or savings side, where you have -- you retain an account. If that 70 percent pays off, then you -- they pay the loan off, you get a loan back, and then hopefully you kept a customer on the deposit side.

When we started the program back when we were talking about did we want to do this or not, we got into it real slowly, and I monitored this almost daily. I'd walk over to the Loan Department. Do we make a loan today? Or what do you do? Do we do it?