Payday Borrower Protection Act of 1999

Summary: Payday Borrower Protection Act of 1999 - Amends the Truth in Lending Act and the Federal Deposit Insurance Act to require persons under their jurisdiction engaged in the business of making payday loans to operate under State licensing and regulatory procedures which meet the criteria imposed by this Act for such transactions. 
Expresses the sense of Congress that deferred deposit loans should only be lawful in States in which laws and regulations are in effect that meet the requirements of this Act, as determined by the Board of Governors of the Federal Reserve System. 
Enumerates State licensing criteria, including the provision of civil and criminal penalties for violations.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Payday Borrower Protection Act of 
1999''.

SEC. 2. PAYDAY LOANS PROHIBITED UNLESS AUTHORIZED PURSUANT TO STATE LAW 
              THAT LICENSES AND REGULATES PAYDAY LENDERS.

    (a) In General.--Section 128 of the Truth in Lending Act (15 U.S.C. 
1638) is amended by adding at the end the following new subsection:
    ``(e) Deferred Deposit Loans.--
            ``(1) Definitions.--For purposes of this subsection, the 
        following definitions shall apply:
                    ``(A) Check.--The term `check' means any negotiable 
                demand draft drawn on or payable through an office of a 
                depository institution (as defined in section 
                19(b)(1)(A) of the Federal Reserve Act) located in the 
                United States.
                    ``(B) Deferred deposit loan.--The term `deferred 
                deposit loan' means a transaction in which credit is 
                extended by a payday lender, for a specified period of 
                time, upon receipt by the lender of--
                            (i) a check made by the borrower for the 
                        amount of the credit extended, the presentment 
                        or negotiation of which, by mutual agreement of 
                        the lender and borrower, will be deferred for 
                        such specified period; or
                            (ii) authorization from the borrower for 
                        the payday lender to initiate an electronic 
                        fund transfer at the end of the specified 
                        period from the account of the borrower for the 
                        amount of the credit extended.
                    ``(C) Payday lender.--The term `payday lender' 
                means any person who extends credit to any other person 
                through a deferred deposit loan.
            ``(2) Payday loans prohibited unless authorized under state 
        laws that license and regulate such lending.--No person may 
        engage in the business of making deferred deposit loans in any 
        State unless--
                    ``(A) expressly authorized to do so under a law of 
                such State that the Board determines at least meets, if 
                not exceeds, all the requirements described in section 
                4(b) of the Payday Borrower Protection Act of 1999 with 
                respect to deferred deposit loans; and
                    ``(B) such person maintains policies and procedures 
                designed to prevent such person from violating any 
                requirement of this title with regard to such loans or 
                with regard to applications, solicitations, or 
                advertisements relating to such loans.
            ``(3) Situs of loan.--For purposes of paragraph (2), a 
        deferred deposit loan shall be considered to be made in the 
        State in which the borrower receives the proceeds of the loan.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply after the end of the 10-day period beginning on the date of the 
enactment of this Act.

SEC. 3. REGULATION OF INVOLVEMENT OF DEPOSITORY INSTITUTIONS IN PAYDAY 
              LENDING.

    Section 18 of the Federal Deposit Insurance Act (12 U.S.C. 1828) is 
amended by adding at the end the following new section:
    ``(t) Payday Loans.--
            ``(1) Loans to noncompliant payday lenders prohibited.--An 
        insured depository institution may not--
                    ``(A) make any deferred deposit loan, either 
                directly or through any agent, unless--
                            ``(i) such loan is in full compliance with 
                        the law of the State in which such loan is 
                        made; and
                            ``(ii) the annual percentage rate (as 
                        determined in accordance with section 107 of 
                        the Truth in Lending Act) applicable with 
                        respect to such loan is less than 36 percent; 
                        or
                    ``(B) make any loan to any payday lender for 
                purposes of financing deferred deposit loans unless the 
                depository institution ascertains that such lender is 
                in full compliance with the Truth in Lending Act, the 
                Electronic Fund Transfer Act, and the law of the State 
                in which any borrower from such payday lender will 
                receive the proceeds of any such deferred deposit loan.
            ``(2) Compliance with state law.--For purposes of 
        determining compliance with this subsection, the Truth in 
        Lending Act, the Electronic Fund Transfer Act, and the law of 
        any State with regard to any deferred deposit loan made by any 
        insured depository institution or payday lender.
            ``(3) Situs of loan.--For purposes of this subsection, a 
        deferred deposit loan shall be considered to be made in the 
        State in which the borrower receives the proceeds of the 
        loan.''.

SEC. 4. STATE LICENSING AND REGULATION OF PAYDAY LOANS.

    (a) In General.--For purposes of protecting the payment system and 
protecting the consumers of payday loans from fraud, abuse, unfair 
practices, usurious rates of interest, and exorbitant fees, it is the 
sense of the Congress that the deferred deposit loans should only be 
lawful in States in which laws and regulations are in effect that meet 
the requirements described in subsection (b), as determined by the 
Board of Governors of the Federal Reserve System.
    (b) Minimum Requirements for Deferred Deposit Loans.--The law of 
any State meets the requirements of this subsection if a statute in 
effect in such State includes the following:
            (1) Licensing requirements.--
                    (A) In general.--Subject to subparagraphs (B) and 
                (C), a requirement that any payday lender, other than a 
                depository institution (as defined in section 
                19(b)(1)(A) of the Federal Reserve Act), be licensed 
                and regulated by an appropriate State agency in order 
                to conduct any business within such State or make any 
                deferred deposit loan within the State (as determined 
                in accordance with paragraph (12)).
                    (B) Depository institutions.--A requirement that 
                any depository institution which makes deferred deposit 
                loans in such State (as determined in accordance with 
                paragraph (12)) shall be subject to such statute and 
                regulated by an appropriate State agency with respect 
                to such lending activity.
                    (C) Exception.--A retail establishment which 
                occasionally cashes checks of customers or advances 
                credit in the form of merchandise may be exempted from 
                the licensing requirement described in subparagraph (A) 
                if such activity is merely incidental to the retail 
                business of such establishment.
            (2) Licensing standards.--A requirement that--
                    (A) in order for any person to be licensed in the 
                State as a payday lender, the appropriate State agency 
                shall review and approve--
                            (i) the business record and the capital 
                        adequacy of the business seeking the license; 
                        and
                            (ii) the competence, experience, character, 
                        integrity, and financial responsibility of each 
                        individual who--
                                    (I) is a director, officer, or 
                                supervisory employee of such business; 
                                or
                                    (II) owns or controls, directly or 
                                indirectly, such business (including 
                                any person who directly or indirectly 
                                controls more than 5 percent of the 
                                shares or assets of the business;
                    (B) any record, on the part of any business seeking 
                the license or any person referred to in subparagraph 
                (A)(ii), of--
                            (i) any criminal activity;
                            (ii) any fraud or other act of personal 
                        dishonesty;
                            (iii) any act, omission, or practice which 
                        constitutes a breach of a fiduciary duty; or
                            (iv) any suspension or removal, by any 
                        agency or department of the United States or 
                        any State, from participation in the conduct of 
                        any federally or State licensed or regulated 
                        business,
                be grounds for the denial of any such license by the 
                appropriate State agency;
                    (C) the applicant establish to the satisfaction of 
                the appropriate State agency that the operation of the 
                business at each authorized location is in the public 
                interest, taking into account the probable effect of 
                such operation in promoting the convenience of, and 
                meeting the credit needs of, the community in which 
                such business is conducted; and
                    (D) the applicant and licensed payday lender meet 
                such surety bond requirements and minimum asset 
                requirements as may be established and maintained by 
                the appropriate State agency.
            (3) Public hearings.--A requirement that any application 
        for a payday lender license be the subject of a public hearing 
        before any final determination is made with regard to such 
        application by the appropriate State agency.
            (4) Administrative action.--Authority for the appropriate 
        State agency to issue regulations to carry out the purposes of 
        such statute, investigate and enforce compliance with the 
        statute and such regulations, handle complaints, suspend or 
        revoke licenses issued to payday lenders and impose civil money 
        penalties for violations of such statute or regulations, and 
        make public the results of any such investigations or 
        enforcement actions and the records of any complaints.
            (5) Reports and records.--A requirement that licensed 
        payday lenders--
                    (A) maintain such records as the appropriate State 
                agency determines are necessary to enforce compliance 
                with the statute; and
                    (B) submit annual reports to the appropriate State 
                agency containing such information as the agency 
                determines to be appropriate to allow the agency to 
                enforce compliance with the statute and regulations 
                prescribed by the agency under the statute, including a 
                copy of all loan documents used by the payday lender in 
                connection with deferred deposit loans and a fee 
                schedule.
            (6) Prohibitions.--A prohibition on--
                    (A) the initiation of any criminal complaint, or 
                use of any threat of initiating a criminal complaint, 
                in connection with the failure of any borrower to repay 
                any deferred deposit loan in accordance with the terms 
                of the loan, including, with respect to any check which 
                formed the basis for a deferred deposit loan, any 
                complaint relating to the making of a check drawn on 
                insufficient funds;
                    (B) any practice which is prohibited under section 
                808 of the Fair Debt Collection Practices Act for a 
                debt collector (as defined in such Act);
                    (C) extending credit under any loan agreement which 
                includes any terms which are unconscionable or against 
                the public interest;
                    (D) engaging in any unfair or deceptive practice;
                    (E) accepting the repayment of any deferred deposit 
                loan if the payday lender knows or has any reason to 
                believe that the funds proferred by the borrower were 
                acquired from the proceeds of another deferred deposit 
                loan;
                    (F) refinancing or rolling over any deferred 
                deposit loan for any period which ends after the date 
                the principal of the original deferred deposit loan was 
                due to be repaid in full; and
                    (G) imposing any additional fee or any premium for 
                any credit insurance offered in conjunction with any 
                deferred deposit loan.
            (7) Requirements relating to terms and conditions.--A 
        requirement that--
                    (A) the period to maturity of any deferred deposit 
                loan may not be less than 2 weeks for each $50 of loan 
                principal;
                    (B) the principal amount of any deferred deposit 
                loan may not exceed $300;
                    (C) any check which forms the basis of a deferred 
                deposit loan be stamped on the back with an endorsement 
                that the check has been received and is being 
                negotiated in connection with a deferred deposit loan 
                and any subsequent holder of the check takes it subject 
                to all claims and defenses of the maker;
                    (D) the annual percentage rate applicable to any 
                deferred deposit loan may not exceed the lesser of--
                            (i) 36 percent; or
                            (ii) the maximum annual percentage rate 
                        allowable in such State for comparable small 
                        loans;
                    (E) the amount of any administrative fee imposed in 
                connection with making a deferred deposit loan may not 
                exceed $5;
                    (F) any unearned interest on deferred deposit loans 
                which are paid before the due date shall be repaid to 
                the borrower on an actuarial basis; and
                    (G) the amount of any fee imposed for any check 
                made or any electronic fund transfer authorized by a 
                borrower in connection with any deferred deposit loan 
                which is returned unpaid to the payday lender due to 
                insufficient funds in an account of such borrower may 
                not exceed the lesser of--
                            (i) $15; or
                            (ii) the charge imposed by the financial 
                        institution returning the check to the payday 
                        lender for handling such check.
            (8) Disclosures.--A requirement that the following 
        information be disclosed in writing to a borrower in connection 
        with any deferred deposit loan and posted in a prominent place 
        at any location where deferred deposit loans are made or 
        extended:
                    (A) A complete description of the terms of the 
                loan.
                    (B) A complete description of the rights of the 
                borrower under the laws of the State, the Truth in 
                Lending Act, the Fair Debt Collection Practices Act, 
                the Electronic Fund Transfer Act, and any other 
                provision of law the appropriate State agency 
                determines to be applicable to such loan.
                    (C) A clear and conspicuous statement that the 
                borrower may not be subject to any criminal action or 
                any threat of criminal action for making a check or 
                authorizing an electronic fund transfer which forms the 
                basis for such loan and is drawn on an account with 
                insufficient funds.
            (9) Civil enforcement.--Provision for civil remedies for 
        violations of the statute with a minimum civil money penalty of 
        $1,000 for each day of any violation of the statute by any 
        payday lender, including private rights of action for any 
        actual, consequential, or liquidated damages suffered by any 
        borrower, or a class of borrowers, in connection with any such 
        violation.
            (10) Criminal penalties for operation of business without a 
        license.--A criminal penalty for anyone, other than a 
        depository institution, making any payday loan within the State 
        after the effective date of such State statute without a 
        license issued by the State.
            (11) Criminal penalties for other violations of the 
        statute.--A provision that any person who knowingly violates 
        any provision of the statute, or any regulation prescribed 
        under the statute, shall be subject to a fine of $1,000, 
        imprisonment for not to exceed 6 months, or both.
            (12) Situs of loan.--A deferred deposit loan is considered 
        to be made in the State in which the borrower will receive the 
        proceeds of the loan.
    (c) Definitions.--For purposes of this section, the following 
definitions shall apply:
            (1) Depository institution.--The term ``depository 
        institution'' has the meaning given to such term in section 
        19(b)(1)(A) of the Federal Reserve Act.
            (2) Other terms.--The terms ``deferred deposit loan'', 
        ``payday lender'', and ``check'' have the meanings given to 
        such terms in section 128(e)(1) of the Truth in Lending Act.