I

106TH CONGRESS

1ST SESSION H. R. 1684

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

MAY 5, 1999

Mr. RUSH introduced the following bill; which was referred to the Committee

on Banking and 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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE.

2 This Act may be cited as the ‘‘Payday Borrower Pro3 tection Act of 1999’’.

4 SEC. 2. PAYDAY LOANS PROHIBITED UNLESS AUTHORIZED

5 PURSUANT TO STATE LAW THAT LICENSES

6 AND REGULATES PAYDAY LENDERS.

7 (a) IN GENERAL.—Section 128 of the Truth in Lend8 ing Act (15 U.S.C. 1638) is amended by adding at the

9 end the following new subsection:

10 ‘‘(e) DEFERRED DEPOSIT LOANS.—

11 ‘‘(1) DEFINITIONS.—For purposes of this sub12 section, the following definitions shall apply:

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

14 any negotiable demand draft drawn on or pay15 able through an office of a depository institu16 tion (as defined in section 19(b)(1)(A) of the

17 Federal Reserve Act) located in the United

18 States.

19 ‘‘(B) DEFERRED DEPOSIT LOAN.—The

20 term ‘deferred deposit loan’ means a trans21 action in which credit is extended by a payday

22 lender, for a specified period of time, upon re23 ceipt by the lender of—

24 (i) a check made by the borrower for

25 the amount of the credit extended, the pre26 sentment or negotiation of which, by mu-
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1 tual agreement of the lender and borrower,

2 will be deferred for such specified period;

3 or

4 (ii) authorization from the borrower

5 for the payday lender to initiate an elec6 tronic fund transfer at the end of the spec7 ified period from the account of the bor8 rower for the amount of the credit ex9 tended.

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

11 lender’ means any person who extends credit to

12 any other person through a deferred deposit

13 loan.

14 ‘‘(2) PAYDAY LOANS PROHIBITED UNLESS AU15 THORIZED UNDER STATE LAWS THAT LICENSE AND

16 REGULATE SUCH LENDING.—No person may engage

17 in the business of making deferred deposit loans in

18 any State unless—

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

20 law of such State that the Board determines at

21 least meets, if not exceeds, all the requirements

22 described in section 4(b) of the Payday Bor23 rower Protection Act of 1999 with respect to

24 deferred deposit loans; and
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1 ‘‘(B) such person maintains policies and

2 procedures designed to prevent such person

3 from violating any requirement of this title with

4 regard to such loans or with regard to applica5 tions, solicitations, or advertisements relating to

6 such loans.

7 ‘‘(3) SITUS OF LOAN.—For purposes of para8 graph (2), a deferred deposit loan shall be consid9 ered to be made in the State in which the borrower

10 receives the proceeds of the loan.

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

12 subsection (a) shall apply after the end of the 10-day pe13 riod beginning on the date of the enactment of this Act.

14 SEC. 3. REGULATION OF INVOLVEMENT OF DEPOSITORY

15 INSTITUTIONS IN PAYDAY LENDING.

16 Section 18 of the Federal Deposit Insurance Act (12

17 U.S.C. 1828) is amended by adding at the end the fol18 lowing new section:

19 ‘‘(t) PAYDAY LOANS.—

20 ‘‘(1) LOANS TO NONCOMPLIANT PAYDAY LEND21 ERS PROHIBITED.—An insured depository institution

22 may not—

23 ‘‘(A) make any deferred deposit loan, ei24 ther directly or through any agent, unless—
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1 ‘‘(i) such loan is in full compliance

2 with the law of the State in which such

3 loan is made; and

4 ‘‘(ii) the annual percentage rate (as

5 determined in accordance with section 107

6 of the Truth in Lending Act) applicable

7 with respect to such loan is less than 36

8 percent; or

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

10 for purposes of financing deferred deposit loans

11 unless the depository institution ascertains that

12 such lender is in full compliance with the Truth

13 in Lending Act, the Electronic Fund Transfer

14 Act, and the law of the State in which any bor15 rower from such payday lender will receive the

16 proceeds of any such deferred deposit loan.

17 ‘‘(2) COMPLIANCE WITH STATE LAW.—For pur18 poses of determining compliance with this sub19 section, the Truth in Lending Act, the Electronic

20 Fund Transfer Act, and the law of any State with

21 regard to any deferred deposit loan made by any in22 sured depository institution or payday lender.

23 ‘‘(3) SITUS OF LOAN.—For purposes of this

24 subsection, a deferred deposit loan shall be consid-
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1 ered to be made in the State in which the borrower

2 receives the proceeds 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, it is the sense of the Con9 gress that the deferred deposit loans should only be lawful

10 in States in which laws and regulations are in effect that

11 meet the requirements described in subsection (b), as de12 termined by the Board of Governors of the Federal Re13 serve System.

14 (b) MINIMUM REQUIREMENTS FOR DEFERRED DE15 POSIT LOANS.—The law of any State meets the require16 ments of this subsection if a statute in effect in such State

17 includes the following:

18 (1) LICENSING REQUIREMENTS.—

19 (A) IN GENERAL.—Subject to subpara20 graphs (B) and (C), a requirement that any

21 payday lender, other than a depository institu22 tion (as defined in section 19(b)(1)(A) of the

23 Federal Reserve Act), be licensed and regulated

24 by an appropriate State agency in order to con25 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 (C) EXCEPTION.—A retail establishment

11 which occasionally cashes checks of customers

12 or advances credit in the form of merchandise

13 may be exempted from the licensing require14 ment described in subparagraph (A) if such ac15 tivity is merely incidental to the retail business

16 of such establishment.

17 (2) LICENSING STANDARDS.—A requirement

18 that—

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

20 in the State as a payday lender, the appropriate

21 State agency shall review and approve—

22 (i) the business record and the capital

23 adequacy of the business seeking the li24 cense; and
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1 (ii) the competence, experience, char2 acter, integrity, and financial responsibility

3 of each individual who—

4 (I) is a director, officer, or super5 visory employee of such business; or

6 (II) owns or controls, directly or

7 indirectly, such business (including

8 any person who directly or indirectly

9 controls more than 5 percent of the

10 shares or assets of the business;

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

12 seeking the license or any person referred to in

13 subparagraph (A)(ii), of—

14 (i) any criminal activity;

15 (ii) any fraud or other act of personal

16 dishonesty;

17 (iii) any act, omission, or practice

18 which constitutes a breach of a fiduciary

19 duty; or

20 (iv) any suspension or removal, by any

21 agency or department of the United States

22 or any State, from participation in the con23 duct of any federally or State licensed or

24 regulated business,
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1 be grounds for the denial of any such license by

2 the appropriate State agency;

3 (C) the applicant establish to the satisfac4 tion of the appropriate State agency that the

5 operation of the business at each authorized lo6 cation is in the public interest, taking into ac7 count the probable effect of such operation in

8 promoting the convenience of, and meeting the

9 credit needs of, the community in which such

10 business is conducted; and

11 (D) the applicant and licensed payday

12 lender meet such surety bond requirements and

13 minimum asset requirements as may be estab14 lished and maintained by the appropriate State

15 agency.

16 (3) PUBLIC HEARINGS.—A requirement that

17 any application for a payday lender license be the

18 subject of a public hearing before any final deter19 mination is made with regard to such application by

20 the appropriate State agency.

21 (4) ADMINISTRATIVE ACTION.—Authority for

22 the appropriate State agency to issue regulations to

23 carry out the purposes of such statute, investigate

24 and enforce compliance with the statute and such

25 regulations, handle complaints, suspend or revoke li-
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1 censes issued to payday lenders and impose civil

2 money penalties for violations of such statute or reg3 ulations, and make public the results of any such in4 vestigations or enforcement actions and the records

5 of any complaints.

6 (5) REPORTS AND RECORDS.—A requirement

7 that licensed payday lenders—

8 (A) maintain such records as the appro9 priate State agency determines are necessary to

10 enforce compliance with the statute; and

11 (B) submit annual reports to the appro12 priate State agency containing such information

13 as the agency determines to be appropriate to

14 allow the agency to enforce compliance with the

15 statute and regulations prescribed by the agen16 cy under the statute, including a copy of all

17 loan documents used by the payday lender in

18 connection with deferred deposit loans and a fee

19 schedule.

20 (6) PROHIBITIONS.—A prohibition on—

21 (A) the initiation of any criminal com22 plaint, or use of any threat of initiating a crimi23 nal complaint, in connection with the failure of

24 any borrower to repay any deferred deposit loan

25 in accordance with the terms of the loan, in-
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1 cluding, with respect to any check which formed

2 the basis for a deferred deposit loan, any com3 plaint relating to the making of a check drawn

4 on insufficient funds;

5 (B) any practice which is prohibited under

6 section 808 of the Fair Debt Collection Prac7 tices Act for a debt collector (as defined in such

8 Act);

9 (C) extending credit under any loan agree10 ment which includes any terms which are un11 conscionable or against the public interest;

12 (D) engaging in any unfair or deceptive

13 practice;

14 (E) accepting the repayment of any de15 ferred deposit loan if the payday lender knows

16 or has any reason to believe that the funds

17 proferred by the borrower were acquired from

18 the proceeds of another deferred deposit loan;

19 (F) refinancing or rolling over any deferred

20 deposit loan for any period which ends after the

21 date the principal of the original deferred de22 posit loan was due to be repaid in full; and

23 (G) imposing any additional fee or any

24 premium for any credit insurance offered in

25 conjunction with any deferred deposit loan.
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1 (7) REQUIREMENTS RELATING TO TERMS AND

2 CONDITIONS.—A requirement that—

3 (A) the period to maturity of any deferred

4 deposit loan may not be less than 2 weeks for

5 each $50 of loan principal;

6 (B) the principal amount of any deferred

7 deposit loan may not exceed $300;

8 (C) any check which forms the basis of a

9 deferred deposit loan be stamped on the back

10 with an endorsement that the check has been

11 received and is being negotiated in connection

12 with a deferred deposit loan and any subse13 quent holder of the check takes it subject to all

14 claims and defenses of the maker;

15 (D) the annual percentage rate applicable

16 to any deferred deposit loan may not exceed the

17 lesser of—

18 (i) 36 percent; or

19 (ii) the maximum annual percentage

20 rate allowable in such State for comparable

21 small loans;

22 (E) the amount of any administrative fee

23 imposed in connection with making a deferred

24 deposit loan may not exceed $5;
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1 (F) any unearned interest on deferred de2 posit loans which are paid before the due date

3 shall be repaid to the borrower on an actuarial

4 basis; and

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

6 check made or any electronic fund transfer au7 thorized by a borrower in connection with any

8 deferred deposit loan which is returned unpaid

9 to the payday lender due to insufficient funds

10 in an account of such borrower may not exceed

11 the lesser of—

12 (i) $15; or

13 (ii) the charge imposed by the finan14 cial institution returning the check to the

15 payday lender for handling such check.

16 (8) DISCLOSURES.—A requirement that the fol17 lowing information be disclosed in writing to a bor18 rower in connection with any deferred deposit loan

19 and posted in a prominent place at any location

20 where deferred deposit loans are made or extended:

21 (A) A complete description of the terms of

22 the loan.

23 (B) A complete description of the rights of

24 the borrower under the laws of the State, the

25 Truth in Lending Act, the Fair Debt Collection
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1 Practices Act, the Electronic Fund Transfer

2 Act, and any other provision of law the appro3 priate State agency determines to be applicable

4 to such loan.

5 (C) A clear and conspicuous statement

6 that the borrower may not be subject to any

7 criminal action or any threat of criminal action

8 for making a check or authorizing an electronic

9 fund transfer which forms the basis for such

10 loan and is drawn on an account with insuffi11 cient funds.

12 (9) CIVIL ENFORCEMENT.—Provision for civil

13 remedies for violations of the statute with a min14 imum civil money penalty of $1,000 for each day of

15 any violation of the statute by any payday lender, in16 cluding private rights of action for any actual, con17 sequential, or liquidated damages suffered by any

18 borrower, or a class of borrowers, in connection with

19 any such violation.

20 (10) CRIMINAL PENALTIES FOR OPERATION OF

21 BUSINESS WITHOUT A LICENSE.—A criminal penalty

22 for anyone, other than a depository institution, mak23 ing any payday loan within the State after the effec24 tive date of such State statute without a license

25 issued by the State.
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1 (11) CRIMINAL PENALTIES FOR OTHER VIOLA2 TIONS OF THE STATUTE.—A provision that any per3 son who knowingly violates any provision of the stat4 ute, or any regulation prescribed under the statute,

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

6 for not to exceed 6 months, or both.

7 (12) SITUS OF LOAN.—A deferred deposit loan

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

9 borrower will receive the proceeds of the loan.

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

11 following definitions shall apply:

12 (1) DEPOSITORY INSTITUTION.—The term ‘‘de13 pository institution’’ has the meaning given to such

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

15 Act.

16 (2) OTHER TERMS.—The terms ‘‘deferred de17 posit loan’’, ‘‘payday lender’’, and ‘‘check’’ have the

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

19 the Truth in Lending Act.

Æ