I 

108TH CONGRESS 

1ST SESSION H. R. 2407

To amend the Consumer Credit Protection Act and other banking laws 

to protect consumers who avail themselves of payday loans from usurious 

interest rates and exorbitant fees, perpetual debt, the use of criminal 

actions to collect debts, and other unfair practices by payday lenders, 

to encourage the States to license and closely regulate payday lenders, 

and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 10, 2003

Mr. RUSH (for himself, Mr. ENGEL, Ms. MILLENDER-MCDONALD, Mr. 

GRIJALVA, Ms. SCHAKOWSKY, Mr. BRADY of Pennsylvania, Mr. THOMPSON of Mississippi, Ms. NORTON, Mr. CUMMINGS, Mr. JEFFERSON, Ms. 

LEE, Mr. ENGLISH, Mr. OWENS, Mr. GUTIERREZ, Mr. DAVIS of Illinois, 

Ms. DELAURO, Mr. HINOJOSA, Mr. PRICE of North Carolina, Mr. SANDERS, Mr. MICHAUD, Mr. CONYERS, and Ms. EDDIE BERNICE JOHNSON

of Texas) introduced the following bill; which was referred to the Committee on Financial Services 

A BILL

To amend the Consumer Credit Protection Act and other 

banking laws to protect consumers who avail themselves 

of payday loans from usurious interest rates and exorbitant fees, perpetual debt, the use of criminal actions 

to collect debts, and other unfair practices by payday 

lenders, to encourage the States to license and closely 

regulate payday lenders, and for other purposes.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Payday Borrower Pro5 tection Act of 2003’’. 

6 SEC. 2. PAYDAY LOANS PROHIBITED UNLESS AUTHORIZED 

7 PURSUANT TO STATE LAW THAT LICENSES 

8 AND REGULATES PAYDAY LENDERS. 

9 (a) IN GENERAL.—Section 128 of the Truth in Lend10 ing Act (15 U.S.C. 1638) is amended by adding at the 

11 end the following new subsection: 

12 ‘‘(e) DEFERRED DEPOSIT LOANS.—

13 ‘‘(1) DEFINITIONS.—For purposes of this sub14 section, the following definitions shall apply: 

15 ‘‘(A) CHECK.—The term ‘check’ means 

16 any negotiable demand draft drawn on or pay17 able through an office of a depository institu18 tion (as defined in section 19(b)(1)(A) of the 

19 Federal Reserve Act) located in the United 

20 States. 

21 ‘‘(B) DEFERRED DEPOSIT LOAN.—The 

22 term ‘deferred deposit loan’ means a trans23 action in which credit is extended by a payday 

24 lender, for a specified period of time, upon re25 ceipt by the lender of—
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1 ‘‘(i) a check made by the borrower for 

2 the amount of the credit extended, the pre3 sentment or negotiation of which, by mu4 tual agreement of the lender and borrower, 

5 will be deferred for such specified period; 

6 or 

7 ‘‘(ii) authorization from the borrower 

8 for the payday lender to initiate an elec9 tronic fund transfer at the end of the spec10 ified period from the account of the bor11 rower for the amount of the credit ex12 tended. 

13 ‘‘(C) PAYDAY LENDER.—The term ‘payday 

14 lender’ means any person who extends credit to 

15 any other person through a deferred deposit 

16 loan. 

17 ‘‘(2) PAYDAY LOANS PROHIBITED UNLESS AU18 THORIZED UNDER STATE LAWS THAT LICENSE AND

19 REGULATE SUCH LENDING.—No person may engage 

20 in the business of making deferred deposit loans in 

21 any State unless—

22 ‘‘(A) expressly authorized to do so under a 

23 law of such State that the Board determines at 

24 least meets, if not exceeds, all the requirements 

25 described in section 4(b) of the Payday Bor-
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1 rower Protection Act of 2003 with respect to 

2 deferred deposit loans; and 

3 ‘‘(B) such person maintains policies and 

4 procedures designed to prevent such person 

5 from violating any requirement of this title with 

6 regard to such loans or with regard to applica7 tions, solicitations, or advertisements relating to 

8 such loans. 

9 ‘‘(3) SITUS OF LOAN.—For purposes of para10 graph (2), a deferred deposit loan shall be consid11 ered to be made in the State in which the borrower 

12 receives the proceeds of the loan.’’. 

13 (b) EFFECTIVE DATE.—The amendment made by 

14 subsection (a) shall apply after the end of the 10-day pe15 riod beginning on the date of the enactment of this Act. 

16 SEC. 3. REGULATION OF INVOLVEMENT OF DEPOSITORY 

17 INSTITUTIONS IN PAYDAY LENDING. 

18 Section 18 of the Federal Deposit Insurance Act (12 

19 U.S.C. 1828) is amended by adding at the end the fol20 lowing new section: 

21 ‘‘(x) PAYDAY LOANS.—

22 ‘‘(1) LOANS TO NONCOMPLIANT PAYDAY LEND23 ERS PROHIBITED.—An insured depository institution 

24 may not—
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1 ‘‘(A) make any deferred deposit loan, ei2 ther directly or through any agent, unless—

3 ‘‘(i) such loan is in full compliance 

4 with the law of the State in which such 

5 loan is made; and 

6 ‘‘(ii) the annual interest rate applica7 ble with respect to such loan is less than 

8 36 percent (as determined without taking 

9 into account any administrative fee which 

10 meets the requirements of section 

11 4(b)(7)(E) of the Payday Borrowers Pro12 tection Act of 2003); or 

13 ‘‘(B) make any loan to any payday lender 

14 for purposes of financing deferred deposit loans 

15 unless the depository institution ascertains that 

16 such lender is in full compliance with the Truth 

17 in Lending Act, the Electronic Fund Transfer 

18 Act, and the law of the State in which any bor19 rower from such payday lender will receive the 

20 proceeds of any such deferred deposit loan. 

21 ‘‘(2) SITUS OF LOAN.—For purposes of para22 graph (1) and determining compliance with this sub23 section, the Truth in Lending Act, the Electronic 

24 Fund Transfer Act, and the law of any State, a de25 ferred deposit loan shall be considered to be made 
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1 in the State in which the borrower receives the pro2 ceeds of the loan.’’.

3 SEC. 4. STATE LICENSING AND REGULATION OF PAYDAY 

4 LOANS. 

5 (a) IN GENERAL.—For purposes of protecting the 

6 payment system and protecting the consumers of payday 

7 loans from fraud, abuse, unfair practices, usurious rates 

8 of interest, and exorbitant fees, deferred deposit loans 

9 shall only be lawful in States in which laws and regula10 tions are in effect that meet the requirements described 

11 in subsection (b), as determined by the Board of Gov12 ernors of the Federal Reserve System. 

13 (b) MINIMUM REQUIREMENTS FOR DEFERRED DE14 POSIT LOANS.—The law of any State meets the require15 ments of this subsection if a statute in effect in such State 

16 includes the following: 

17 (1) LICENSING REQUIREMENTS.—

18 (A) IN GENERAL.—Subject to subpara19 graphs (B) and (C), a requirement that any 

20 payday lender, other than a depository institu21 tion (as defined in section 19(b)(1)(A) of the 

22 Federal Reserve Act), be licensed and regulated 

23 by an appropriate State agency in order to con24 duct any business within such State or make 
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1 any deferred deposit loan within the State (as 

2 determined in accordance with paragraph (12)). 

3 (B) DEPOSITORY INSTITUTIONS.—A re4 quirement that any depository institution which 

5 makes deferred deposit loans in such State (as 

6 determined in accordance with paragraph (12)) 

7 shall be subject to such statute and regulated 

8 by an appropriate State agency with respect to 

9 such lending activity. 

10 (2) LICENSING STANDARDS.—A requirement 

11 that—

12 (A) in order for any person to be licensed 

13 in the State as a payday lender, the appropriate 

14 State agency shall review and approve—

15 (i) the business record and the capital 

16 adequacy of the business seeking the li17 cense; and 

18 (ii) the competence, experience, char19 acter, integrity, and financial responsibility 

20 of each individual who—

21 (I) is a director, officer, or super22 visory employee of such business; or 

23 (II) owns or controls, directly or 

24 indirectly, such business (including 

25 any person who directly or indirectly 
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1 controls more than 5 percent of the 

2 shares or assets of the business; 

3 (B) any record, on the part of any business 

4 seeking the license or any person referred to in 

5 subparagraph (A)(ii), of—

6 (i) any criminal activity; 

7 (ii) any fraud or other act of personal 

8 dishonesty; 

9 (iii) any act, omission, or practice 

10 which constitutes a breach of a fiduciary 

11 duty; or 

12 (iv) any suspension or removal, by any 

13 agency or department of the United States 

14 or any State, from participation in the con15 duct of any federally or State licensed or 

16 regulated business, 

17 be grounds for the denial of any such license by 

18 the appropriate State agency; 

19 (C) the applicant establish to the satisfac20 tion of the appropriate State agency that the 

21 operation of the business at each authorized lo22 cation is in the public interest, taking into ac23 count the probable effect of such operation in 

24 promoting the convenience of, and meeting the 
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1 credit needs of, the community in which such 

2 business is conducted; 

3 (D) the applicant and licensed payday 

4 lender meet such surety bond requirements and 

5 minimum asset requirements as may be estab6 lished and maintained by the appropriate State 

7 agency; and 

8 (E) in order for an applicant to meet the 

9 requirements of subparagraph (D)—

10 (i) the applicant maintain a minimum 

11 of $50,000 of surety bond coverage for 

12 each business location maintained by the 

13 applicant; and 

14 (ii) the proceeds of any such surety 

15 bond coverage be available to pay any con16 sumer for any violation of any Federal or 

17 State law relating to deferred deposit 

18 loans. 

19 (3) PUBLIC HEARINGS.—A requirement that 

20 any application for a payday lender license be the 

21 subject of a public hearing before any final deter22 mination is made with regard to such application by 

23 the appropriate State agency. 

24 (4) ADMINISTRATIVE ACTION.—Authority for 

25 the appropriate State agency to issue regulations to 
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1 carry out the purposes of such statute, investigate 

2 and enforce compliance with the statute and such

3 regulations, handle complaints, suspend or revoke li4 censes issued to payday lenders and impose civil 

5 money penalties for violations of such statute or reg6 ulations, and make public the results of any such 

7 investigations or enforcement actions and the 

8 records of any complaints. 

9 (5) REPORTS AND RECORDS.—A requirement 

10 that licensed payday lenders—

11 (A) maintain such records as the appro12 priate State agency determines are necessary to 

13 enforce compliance with the statute; and 

14 (B) submit annual reports to the appro15 priate State agency containing such information 

16 as the agency determines to be appropriate to 

17 allow the agency to enforce compliance with the 

18 statute and regulations prescribed by the agen19 cy under the statute, including a copy of all 

20 loan documents used by the payday lender in 

21 connection with deferred deposit loans and a fee 

22 schedule. 

23 (6) PROHIBITIONS.—A prohibition on—

24 (A) the initiation of any criminal action or 

25 any civil proceeding, or use of any threat of ini-
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1 tiating any such criminal action or civil pro2 ceeding, in connection with the failure of any 

3 borrower to repay any deferred deposit loan in 

4 accordance with the terms of the loan (other 

5 than a proceeding directly related to the collec6 tion of such debt and actual damages), includ7 ing any criminal action or civil proceeding, or a 

8 threat of any such action or proceeding, relat9 ing to the act of a customer in drawing a check 

10 or authorizing an electronic fund transfer which 

11 formed the basis for a payday loan and is 

12 drawn on an account with insufficient funds; 

13 (B) any practice which is prohibited under 

14 section 808 of the Fair Debt Collection Prac15 tices Act for a debt collector (as defined in such 

16 Act); 

17 (C) extending credit under any loan agree18 ment which includes any terms which are un19 conscionable or against the public interest; 

20 (D) engaging in any unfair or deceptive 

21 practice; 

22 (E) accepting the repayment of any de23 ferred deposit loan if the payday lender knows 

24 or has any reason to believe that the funds 
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1 proferred by the borrower were acquired from 

2 the proceeds of another deferred deposit loan;

3 (F) refinancing or rolling over any deferred 

4 deposit loan, or initiating a new deferred de5 posit loan unless 30 days has elapsed from the 

6 termination of any prior deferred deposit loan 

7 from that payday lender (or any affiliate or 

8 other associate of the payday lender) to the cus9 tomer; 

10 (G) imposing any additional fee or any 

11 premium for any credit insurance offered in 

12 conjunction with any deferred deposit loan; and 

13 (H) including any clause in the note or 

14 other document related to the deferred deposit 

15 loan which requires the consumer to submit any 

16 claim or defense relating to the transaction to 

17 binding arbitration or other nonjudicial pro18 ceeding. 

19 (7) REQUIREMENTS RELATING TO TERMS AND

20 CONDITIONS.—A requirement that—

21 (A) the period to maturity of any deferred 

22 deposit loan may not be less than 2 weeks for 

23 each $50 of loan principal; 

24 (B) the principal amount of any deferred 

25 deposit loan may not exceed $300; 
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1 (C) any check which forms the basis of a 

2 deferred deposit loan be stamped on the back 

3 with an endorsement that the check has been 

4 received and is being negotiated in connection 

5 with a deferred deposit loan and any subse6 quent holder of the check takes it subject to all 

7 claims and defenses of the maker; 

8 (D) the annual interest rate applicable to 

9 any deferred deposit loan may not exceed the 

10 lesser of—

11 (i) 36 percent; or 

12 (ii) the maximum annual percentage 

13 rate allowable in such State for comparable 

14 small loans; 

15 (E) the amount of any administrative fee 

16 imposed in connection with making a deferred 

17 deposit loan may not exceed $5;

18 (F) any unearned interest on deferred de19 posit loans which are paid before the due date 

20 shall be repaid to the borrower on an actuarial 

21 basis; and 

22 (G) the amount of any fee imposed for any 

23 check made or any electronic fund transfer au24 thorized by a borrower in connection with any 

25 deferred deposit loan which is returned unpaid 
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1 to the payday lender due to insufficient funds

2 in an account of such borrower may not exceed 

3 the lesser of—

4 (i) $15; or 

5 (ii) the charge imposed by the finan6 cial institution returning the check to the 

7 payday lender for handling such check. 

8 (8) DISCLOSURES.—A requirement that the fol9 lowing information be disclosed in writing to a bor10 rower in connection with any deferred deposit loan 

11 and posted in a prominent place at any location 

12 where deferred deposit loans are made or extended: 

13 (A) A complete description of the terms of 

14 the loan. 

15 (B) A complete description of the rights of 

16 the borrower under the laws of the State, the 

17 Truth in Lending Act, the Fair Debt Collection 

18 Practices Act, the Electronic Fund Transfer 

19 Act, and any other provision of law the appro20 priate State agency determines to be applicable 

21 to such loan. 

22 (C) A clear and conspicuous statement 

23 that the borrower may not be subject to any 

24 criminal action or civil proceeding, or the use of 

25 any threat of initiating any such criminal action 
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1 or civil proceeding, in connection with the fail2 ure of any borrower to repay any deferred de3 posit loan in accordance with the terms of the 

4 loan (other than a proceeding directly related to 

5 the collection of such debt and actual damages), 

6 including any criminal action or civil pro7 ceeding, or a threat of any such action or pro8 ceeding, relating to the act of a customer in 

9 drawing a check or authorizing an electronic 

10 fund transfer which formed the basis for a pay11 day loan and is drawn on an account with in12 sufficient funds. 

13 (9) CIVIL ENFORCEMENT.—Provision for civil 

14 penalties for violations of the statute with a min15 imum civil money penalty of $1,000 for any violation 

16 of the statute by any payday lender. 

17 (10) PRIVATE RIGHT OF ACTION.—Provisions 

18 that make any person who violates any provision of 

19 the statute with respect to any other person liable to 

20 such other person, or to a class of such other per21 sons, for actual, consequential, and punitive dam22 ages, statutory damages of $1,000 for each violation, 

23 and costs and attorney’s fees. 

24 (11) CRIMINAL PENALTIES FOR OPERATION OF

25 BUSINESS WITHOUT A LICENSE.—A criminal penalty 
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1 for anyone, other than a depository institution, mak2 ing any payday loan within the State after the effec3 tive date of such State statute without a license 

4 issued by the State. 

5 (12) CRIMINAL PENALTIES FOR OTHER VIOLA6 TIONS OF THE STATUTE.—A provision that any per7 son who knowingly violates any provision of the stat8 ute, or any regulation prescribed under the statute, 

9 shall be subject to a fine of $1,000, imprisonment 

10 for not to exceed 6 months, or both. 

11 (13) SITUS OF LOAN.—A deferred deposit loan 

12 is considered to be made in the State in which the 

13 borrower will receive the proceeds of the loan. 

14 (c) DEFINITIONS.—For purposes of this section, the 

15 following definitions shall apply: 

16 (1) DEPOSITORY INSTITUTION.—The term ‘‘de17 pository institution’’ has the meaning given to such 

18 term in section 19(b)(1)(A) of the Federal Reserve 

19 Act. 

20 (2) OTHER TERMS.—The terms ‘‘deferred de21 posit loan’’, ‘‘payday lender’’, and ‘‘check’’ have the 

22 meanings given to such terms in section 128(e)(1) of 

23 the Truth in Lending Act.

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