Fair Profit Sharing with Depositors
This proposal aims to create a fair profit-sharing mechanism between banks and depositors. When a bank charges an interest rate above the national average on personal or business loans, it would be required to share a portion of those profits with its depositors.
How It Works
- Profit Calculation: If a bank charges a higher-than-average interest rate, the excess amount over the national average is calculated. For example, if a bank charges 29% interest on a loan and the national average is 6.8%, the excess is 22.2% (29% - 6.8%).
- 50% Profit Share: Half (50%) of this excess interest is allocated to depositors’ accounts. In the example above, 11.1% (half of 22.2%) would be credited to depositors, proportionate to their deposit balances.
- Proportional Distribution: Each depositor’s share depends on their balance relative to the total deposits the bank uses for lending.
Example Application
If a depositor has $10 in their account, and the bank has charged the excess interest rate of 22.2%, they would earn an additional 11.1% (half of the excess interest rate) on their balance, which translates to more interest earnings on their deposit.
Compliance and Transparency
Banks would be required to provide quarterly reports to depositors, showing the interest rates charged, the national average, and how much was credited back to accounts. Failure to comply may lead to penalties.
EXAMPLE HOUSE BILL RESOLUTION: 117th Congress 2nd Session
H. RES. [XXXX]
A BILL
To mandate a profit-sharing mechanism with depositors for interest charged by financial institutions on loans exceeding the national average rate, in order to ensure fair and equitable profit distribution.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE
This Act may be cited as the “Fair Profit Sharing with Depositors Act.”
SECTION 2. PURPOSE
The purpose of this Act is to establish a profit-sharing mechanism between financial institutions and depositors, ensuring that depositors receive a fair share of interest profits when banks charge above the national average interest rate on loans funded by depositor funds.
SECTION 3. DEFINITIONS
For the purposes of this Act:
- National Average Interest Rate: The average annual interest rate on personal and business loans as set by the Federal Reserve.
- Financial Institution: Any bank, savings association, credit union, or other institution that accepts deposits and makes personal or business loans.
- Depositor: Any individual or entity with a deposit account in a financial institution, such as savings, checking, or other deposit accounts.
- Profit Share: The amount of interest over the National Average Interest Rate charged by a financial institution that must be shared with depositors.
SECTION 4. PROFIT-SHARING REQUIREMENT
(a) Profit Sharing with Depositors
Any financial institution that charges an interest rate on loans in excess of the National Average Interest Rate shall credit a portion of the profits from these loans to depositors’ accounts, as follows:
- Profit Calculation
The financial institution shall calculate the difference between the interest rate charged to borrowers and the National Average Interest Rate. - 50% Distribution Requirement
Fifty percent (50%) of this difference shall be credited to depositors in the form of an interest payment, proportional to their deposit balance.
(b) Proportional Distribution to Depositors
Each depositor’s share of the profit shall be calculated based on the ratio of the individual depositor’s balance to the total deposits used by the financial institution for lending purposes.
SECTION 5. EXAMPLE APPLICATION
(a) If a financial institution charges 29% interest on a personal or business loan while the National Average Interest Rate is 6.8%, the institution shall calculate the excess rate as follows:
- Interest Rate Excess
Excess = 29% - 6.8% = 22.2% - Profit Share for Depositors
50% of 22.2% = 11.1% shall be credited to depositor accounts as interest earnings.
(b) Individual Depositor Earnings
A depositor with a $10.00 balance in their savings account would earn an interest rate of 11.1% on that balance, derived from the excess interest charges on loans made by the bank.
SECTION 6. COMPLIANCE AND REPORTING
(a) Quarterly Reporting Requirement
Financial institutions shall provide a quarterly report to depositors, detailing the interest charged on loans, the National Average Interest Rate, and the amount credited to depositors’ accounts as a result of profit-sharing.
(b) Penalties for Non-Compliance
Financial institutions failing to comply with this Act may face fines and sanctions as determined by the appropriate regulatory authority.
SECTION 7. EFFECTIVE DATE
This Act shall take effect on January 1 of the fiscal year following its enactment.
END