I 

109TH CONGRESS 

2D SESSION H. R. 5350 

To amend the Federal Deposit Insurance Act and the Truth in Lending 

Act to prohibit federally insured institutions from engaging in highcost payday loans, to expand protections for consumers in connection 

with the making of such loans by uninsured entities, and for other 

purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 10, 2006 

Mr. UDALL of New Mexico introduced the following bill; which was referred 

to the Committee on Financial Services 

A BILL 

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. 

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 ‘‘Federal Payday Loan 

5 Consumer Protection Amendments of 2006’’. 


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1 SEC. 2. FINDINGS AND PURPOSE. 

2 (a) FINDINGS.—The Congress makes the following 

3 findings: 

4 (1) Payday lending is a rapidly expanding form 

5 of high-cost, short-term credit that uses a borrower’s 

6 personal check as collateral and targets individuals 

7 with limited access to affordable credit who are in 

8 desperate need of cash to meet immediate obliga9 tions. 

10 (2) Consumer group and regulatory studies in11 dicate that the average annual percentage rate on 

12 payday loans nationally ranges from 390 percent to 

13 780 percent for a 2-week loan and a typical cus14 tomer has 8 to 12 loans per year at a single lender. 

15 (3) While State law has traditionally prohibited 

16 such high cost lending through usury limits, small 

17 loan interest caps and other restrictions, these laws 

18 have either been revised to exempt payday loan 

19 transactions, or payday lenders have affiliated with 

20 insured depository institutions to invoke the most fa21 vored lender principle under Federal law to cir22 cumvent interest rate regulation in State law. 

23 (4) Lending that fails to assess borrowers abil24 ity to repay, that requires consumers to write checks 

25 on insufficient funds, that encourages perpetual debt 

26 or default on other obligations, and that facilitates 


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1 violations of State law, is an unacceptable banking 

2 practice for insured depository institutions that 

3 threatens the safety of the participating institution 

4 and the broader banking system. 

5 (b) PURPOSE.—It is the purpose of this Act to en6 courage fair lending practices by prohibiting insured de7 pository institutions from engaging in any form of payday 

8 lending, by restricting the use of personal checks drawn 

9 on, or forms of withdrawals from, accounts at insured de10 pository institutions for purposes of making payday loans. 

11 SEC. 3. FEDERAL DEPOSIT INSURANCE ACT AMENDMENT. 

12 Section 18 of the Federal Deposit Insurance Act (12 

13 U.S.C. 1828) is amended by adding at the end the fol14 lowing new subsection: 

15 ‘‘(x) PROHIBITION ON CERTAIN UNSAFE AND UN16 SOUND BANKING PRACTICES.— 

17 ‘‘(1) IN GENERAL.—An insured depository in18 stitution may not— 

19 ‘‘(A) make any payday loan, either directly 

20 or indirectly; or 

21 ‘‘(B) make any loan to any other lender 

22 for purposes of financing a payday loan or refi23 nancing or extending any payday loan. 

24 ‘‘(2) PAYDAY LOAN DEFINED.—For purposes of 

25 this subsection, the term ‘payday loan’ means any 


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1 transaction in which a short-term cash advance is 

2 made to a consumer in exchange for— 

3 ‘‘(A) a consumer’s personal check or share 

4 draft, in the amount of the advance plus a fee, 

5 where presentment or negotiation of such check 

6 or share draft is deferred by agreement of the 

7 parties until a designated future date; or 

8 ‘‘(B) a consumer’s authorization to debit 

9 the consumer’s transaction account, in the 

10 amount of the advance plus a fee, where such 

11 account will be debited on or after a designated 

12 future date.’’. 

13 SEC. 4. PROHIBITION ON CERTAIN UNSAFE AND UNSOUND 

14 LENDING PRACTICES. 

15 (a) IN GENERAL.—Section 128 of the Truth in Lend16 ing Act (15 U.S.C. 1638) is amended by adding at the 

17 end the following new subsection: 

18 ‘‘(e) PROHIBITION ON PAYDAY LOANS BASED ON

19 CHECKS DRAWN ON, OR AUTHORIZED WITHDRAWALS

20 FROM, INSURED DEPOSITORY INSTITUTIONS.— 

21 ‘‘(1) IN GENERAL.—A creditor may not make a 

22 payday loan to any person if the creditor knows or 

23 has reasonable cause to believe that— 

24 ‘‘(A) the personal check or share draft the 

25 creditor receives from the person, in exchange 


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1 for the loan, is drawn on an insured depository 

2 institution or insured credit union; or 

3 ‘‘(B) the account the creditor receives per4 mission from the person to debit, in exchange 

5 for the loan, is a transaction account or share 

6 draft account at an insured depository institu7 tion or an insured credit union. 

8 ‘‘(2) DEFINITIONS.—For purposes of this sub9 section, the following definitions shall apply: 

10 ‘‘(A) INSURED CREDIT UNION.—The term 

11 ‘insured credit union’ has the meaning given 

12 the term in section 101 of the Federal Credit 

13 Union Act. 

14 ‘‘(B) INSURED DEPOSITORY INSTITU15 TION.—The term ‘insured depository institu16 tion’ has the meaning given the term in section 

17 3 of the Federal Deposit Insurance Act. 

18 ‘‘(C) PAYDAY LOAN DEFINED.—The term 

19 ‘payday loan’ means any transaction in which a 

20 short-term cash advance is made to a consumer 

21 in exchange for— 

22 ‘‘(i) a consumer’s personal check or 

23 share draft, in the amount of the advance 

24 plus a fee, where presentment or negotia25 tion of such check or share draft is deVerDate Aug 31 2005 00:26 May 14, 2006 Jkt 049196 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H5350.IH H5350

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1 ferred by agreement of the parties until a 

2 designated future date; or 

3 ‘‘(ii) a consumer’s authorization to 

4 debit the consumer’s transaction or share 

5 draft account, in the amount of the ad6 vance plus a fee, where such account will 

7 be debited on or after a designated future 

8 date.’’. 

9 (b) CLARIFICATION OF LIABILITY.—Section 130(a) 

10 of the Truth in Lending Act (15 U.S.C. 1640(a)) is 

11 amended by inserting after the penultimate sentence the 

12 following new sentence: ‘‘Any creditor who violates section 

13 128(e) with respect to any person shall be liable to such 

14 person under paragraphs (1), (2) and (3).’’. 

15 (c) FEDERAL RESERVE BOARD STUDY OF ADVER16 TISING AND WARNING LABELS FOR HIGH-INTEREST

17 LOANS.— 

18 (1) STUDY REQUIRED.—The Board of Gov19 ernors of the Federal Reserve System shall conduct 

20 a study to determine the most effective way to re21 quire— 

22 (A) advertising of the finance charge and the 

23 annual percentage rate; and 

24 (B) the inclusion of a high-interest warning 

25 label, 


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1 on all applications and contracts for credit (as de2 fined in section 103 of the Truth in Lending Act) 

3 bearing interest at an annual percentage rate in ex4 cess of 36 percent. 

5 (2) REPORT TO THE CONGRESS.—The Board of 

6 Governors of the Federal Reserve System shall sub7 mit a report to the Congress before the end of the 

8 6-month period beginning on the date of the enact9 ment of this Act containing the findings and conclu10 sions of the Board with respect to the study required 

11 under subsection (a), together with such rec12 ommendations for legislative or administrative action 

13 as the Board may determines to be appropriate. 

14 SEC. 5. EFFECTIVE DATE. 

15 The requirements of this Act and the amendments 

16 made by this Act shall take effect at the end of the 90- 

17 day period beginning on the date of the enactment of this 

18 Act and shall apply to payday loans initiated on or after 

19 such date and to an extension or renewal of a payday loan 

20 made on or after such date. 

Æ 


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