To amend the Federal Deposit Insurance Act and the Truth in Lending Act to prohibit federally insured institutions from engaging in high-cost payday loans, to expand protections for consumers in connection with the making of such loans by uninsured entities, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Federal Payday Loan Consumer 
Protection Amendments of 2006''.

SEC. 2. FINDINGS AND PURPOSE.

    (a) Findings.--The Congress makes the following findings:
            (1) Payday lending is a rapidly expanding form of high-
        cost, short-term credit that uses a borrower's personal check 
        as collateral and targets individuals with limited access to 
        affordable credit who are in desperate need of cash to meet 
        immediate obligations.
            (2) Consumer group and regulatory studies indicate that the 
        average annual percentage rate on payday loans nationally 
        ranges from 390 percent to 780 percent for a 2-week loan and a 
        typical customer has 8 to 12 loans per year at a single lender.
            (3) While State law has traditionally prohibited such high 
        cost lending through usury limits, small loan interest caps and 
        other restrictions, these laws have either been revised to 
        exempt payday loan transactions, or payday lenders have 
        affiliated with insured depository institutions to invoke the 
        most favored lender principle under Federal law to circumvent 
        interest rate regulation in State law.
            (4) Lending that fails to assess borrowers ability to 
        repay, that requires consumers to write checks on insufficient 
        funds, that encourages perpetual debt or default on other 
        obligations, and that facilitates violations of State law, is 
        an unacceptable banking practice for insured depository 
        institutions that threatens the safety of the participating 
        institution and the broader banking system.
    (b) Purpose.--It is the purpose of this Act to encourage fair 
lending practices by prohibiting insured depository institutions from 
engaging in any form of payday lending, by restricting the use of 
personal checks drawn on, or forms of withdrawals from, accounts at 
insured depository institutions for purposes of making payday loans.

SEC. 3. FEDERAL DEPOSIT INSURANCE ACT AMENDMENT.

    Section 18 of the Federal Deposit Insurance Act (12 U.S.C. 1828) is 
amended by adding at the end the following new subsection:
    ``(x) Prohibition on Certain Unsafe and Unsound Banking 
Practices.--
            ``(1) In general.--An insured depository institution may 
        not--
                    ``(A) make any payday loan, either directly or 
                indirectly; or
                    ``(B) make any loan to any other lender for 
                purposes of financing a payday loan or refinancing or 
                extending any payday loan.
            ``(2) Payday loan defined.--For purposes of this 
        subsection, the term `payday loan' means any transaction in 
        which a short-term cash advance is made to a consumer in 
        exchange for--
                    ``(A) a consumer's personal check or share draft, 
                in the amount of the advance plus a fee, where 
                presentment or negotiation of such check or share draft 
                is deferred by agreement of the parties until a 
                designated future date; or
                    ``(B) a consumer's authorization to debit the 
                consumer's transaction account, in the amount of the 
                advance plus a fee, where such account will be debited 
                on or after a designated future date.''.

SEC. 4. PROHIBITION ON CERTAIN UNSAFE AND UNSOUND LENDING PRACTICES.

    (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) Prohibition on Payday Loans Based on Checks Drawn on, or 
Authorized Withdrawals From, Insured Depository Institutions.--
            ``(1) In general.--A creditor may not make a payday loan to 
        any person if the creditor knows or has reasonable cause to 
        believe that--
                    ``(A) the personal check or share draft the 
                creditor receives from the person, in exchange for the 
                loan, is drawn on an insured depository institution or 
                insured credit union; or
                    ``(B) the account the creditor receives permission 
                from the person to debit, in exchange for the loan, is 
                a transaction account or share draft account at an 
                insured depository institution or an insured credit 
                union.
            ``(2) Definitions.--For purposes of this subsection, the 
        following definitions shall apply:
                    ``(A) Insured credit union.--The term `insured 
                credit union' has the meaning given the term in section 
                101 of the Federal Credit Union Act.
                    ``(B) Insured depository institution.--The term 
                `insured depository institution' has the meaning given 
                the term in section 3 of the Federal Deposit Insurance 
                Act.
                    ``(C) Payday loan defined.--The term `payday loan' 
                means any transaction in which a short-term cash 
                advance is made to a consumer in exchange for--
                            ``(i) a consumer's personal check or share 
                        draft, in the amount of the advance plus a fee, 
                        where presentment or negotiation of such check 
                        or share draft is deferred by agreement of the 
                        parties until a designated future date; or
                            ``(ii) a consumer's authorization to debit 
                        the consumer's transaction or share draft 
                        account, in the amount of the advance plus a 
                        fee, where such account will be debited on or 
                        after a designated future date.''.
    (b) Clarification of Liability.--Section 130(a) of the Truth in 
Lending Act (15 U.S.C. 1640(a)) is amended by inserting after the 
penultimate sentence the following new sentence: ``Any creditor who 
violates section 128(e) with respect to any person shall be liable to 
such person under paragraphs (1), (2) and (3).''.
    (c) Federal Reserve Board Study of Advertising and Warning Labels 
for High-Interest Loans.--
            (1) Study required.--The Board of Governors of the Federal 
        Reserve System shall conduct a study to determine the most 
        effective way to require--
            (A) advertising of the finance charge and the annual 
        percentage rate; and
            (B) the inclusion of a high-interest warning label,
        on all applications and contracts for credit (as defined in 
        section 103 of the Truth in Lending Act) bearing interest at an 
        annual percentage rate in excess of 36 percent.
            (2) Report to the congress.--The Board of Governors of the 
        Federal Reserve System shall submit a report to the Congress 
        before the end of the 6-month period beginning on the date of 
        the enactment of this Act containing the findings and 
        conclusions of the Board with respect to the study required 
        under subsection (a), together with such recommendations for 
        legislative or administrative action as the Board may 
        determines to be appropriate.

SEC. 5. EFFECTIVE DATE.

    The requirements of this Act and the amendments made by this Act 
shall take effect at the end of the 90-day period beginning on the date 
of the enactment of this Act and shall apply to payday loans initiated 
on or after such date and to an extension or renewal of a payday loan 
made on or after such date.

Summary: Federal Payday Loan Consumer Protection Amendments of 2006 - Amends the Federal Deposit Insurance Act to prohibit an insured depository institution from: (1) making any payday loan, either directly or indirectly. Or (2) making any loan to any other lender for purposes of financing, refinancing, or extending any payday loan. Amends the Truth in Lending Act to prohibit payday loans based on checks drawn on, or authorized withdrawals from, insured depository institutions.