I

107TH CONGRESS

1ST SESSION H. R. 1055

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

MARCH 15, 2001

Mr. LAFALCE (for himself, Mr. KANJORSKI, Mrs. MALONEY of New York, Mr.

GUTIERREZ, Ms. LEE, Mrs. JONES of Ohio, Mr. CAPUANO, Mr. CLAY,

Mr. HINCHEY, and Ms. SCHAKOWSKY) 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 2001’’.
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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 studies indicate that the

11 average annual percentage rate on payday loans na12 tionally is 474 percent for a two-week loan, and that

13 a typical payday loan is renewed ten or more times

14 before repayment at equivalent annual interest rates

15 that exceed 1000 percent.

16 (3) While State law has traditionally prohibited

17 such high cost lending through usury limits, small

18 loan interest caps and other restrictions, these laws

19 have either been revised to exempt payday loan

20 transactions, or payday lenders have affiliated with

21 insured depository institutions to invoke the most fa22 vored lender principle under Federal law to cir23 cumvent interest rate regulation in State law.

24 (4) Lending that fails to assess borrowers abil25 ity to repay, that requires consumers to write checks

26 on insufficient funds, that encourages perpetual debt
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1 or default on other obligations, and that facilitates

2 violations of State law, is an unacceptable banking

3 practice for insured depository institutions that

4 threatens the safety of the participating institution

5 and the broader banking system.

6 (5) While Congress clearly intended for the

7 credit protections of the Truth in Lending Act to

8 apply broadly to all credit transactions, including

9 payday loan transactions, and such application to

10 payday loan transactions has been correctly affirmed

11 in recent court decisions, the provision of Truth in

12 Lending credit disclosures is not standard practice

13 among payday lenders across the country and should

14 be a more explicit requirement in Federal statutes

15 and regulations.

16 (b) PURPOSE.—It is the purpose of this Act to en17 courage fair lending practices by prohibiting insured de18 pository institutions from engaging in any form of payday

19 lending, by restricting the use of personal checks drawn

20 on, or forms of withdrawals from, accounts at insured de21 pository institutions for purposes of making payday loans,

22 and by clarifying what the Congress has always intended

23 by explicitly stating in the Truth in Lending Act that ap24 propriate interest rate disclosure and other consumer pro25 tections of the Act do apply to all payday loans.
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1 SEC. 3. FEDERAL DEPOSIT INSURANCE ACT AMENDMENT.

2 Section 18 of the Federal Deposit Insurance Act (12

3 U.S.C. 1828) is amended by adding at the end the fol4 lowing new subsection:

5 ‘‘(v) PROHIBITION ON CERTAIN UNSAFE AND UN6 SOUND BANKING PRACTICES.—

7 ‘‘(1) IN GENERAL.—An insured depository in8 stitution may not—

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

10 or indirectly; or

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

12 for purposes of financing a payday loan or refi13 nancing or extending any payday loan.

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

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

16 transaction in which a short-term cash advance is

17 made to a consumer in exchange for—

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

19 share draft, in the amount of the advance

20 plus a fee, where presentment or negotia21 tion of such check or share draft is de22 ferred by agreement of the parties until a

23 designated future date; or

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

25 debit the consumer’s transaction account,

26 in the amount of the advance plus a fee,
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1 where such account will be debited on or

2 after a designated future date.’’.

3 SEC. 4. TRUTH IN LENDING ACT AMENDMENTS.

4 (a) CLARIFICATION OF APPLICATION TO PAYDAY

5 LOANS.—For purposes of clarifying that payday loans

6 have always been within the definition of credit, section

7 103(e) of the Consumer Credit Protection Act (15 U.S.C.

8 1602(e)) is amended, effective as of the date of the enact9 ment of this Act, by inserting before the period at the end

10 ‘‘, including any payday loan (as defined in section

11 18(v)(2) of the Federal Deposit Insurance Act)’’.

12 (b) PROHIBITION ON CERTAIN UNSAFE AND UN13 SOUND LENDING PRACTICES.—Section 128 of the Truth

14 in Lending Act (15 U.S.C. 1638) is amended by adding

15 at the end the following new subsection:

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

17 CHECKS DRAWN ON, OR AUTHORIZED WITHDRAWALS

18 FROM, INSURED DEPOSITORY INSTITUTIONS.—

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

20 payday loan to any person if the creditor knows or

21 has reasonable cause to believe that—

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

23 creditor receives from the person, in exchange

24 for the loan, is drawn on an insured depository

25 institution or insured credit union; or
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1 ‘‘(B) the account the creditor receives per2 mission from the person to debit, in exchange

3 for the loan, is a transaction account or share

4 draft account at an insured depository institu5 tion or an insured credit union.

6 ‘‘(2) DEFINITIONS.—For purposes of this sub7 section, the following definitions shall apply:

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

9 ‘insured credit union’ has the meaning given

10 the term in section 101 of the Federal Credit

11 Union Act.

12 ‘‘(B) INSURED DEPOSITORY INSTITU13 TION.—The term ‘insured depository institu14 tion’ has the meaning given the term in section

15 3 of the Federal Deposit Insurance Act.

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

17 ‘payday loan’ means any transaction in which a

18 short-term cash advance is made to a consumer

19 in exchange for—

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

21 share draft, in the amount of the advance

22 plus a fee, where presentment or negotia23 tion of such check or share draft is de24 ferred by agreement of the parties until a

25 designated future date; or
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1 ‘‘(ii) a consumer’s authorization to

2 debit the consumer’s transaction or share

3 draft account, in the amount of the ad4 vance plus a fee, where such account will

5 be debited on or after a designated future

6 date.’’.

7 (c) CIVIL LIABILITY.—

8 (1) IN GENERAL.—Section 130(a)(2) of the

9 Truth in Lending Act (15 U.S.C. 1640(a)(2)) is

10 amended—

11 (A) in subparagraph (A)—

12 (i) by inserting ‘‘clauses (i) and (ii)

13 of’’ after ‘‘except that the liability under’’;

14 (ii) by striking ‘‘$100’’ and inserting

15 ‘‘$200’’; and

16 (iii) by striking ‘‘$1,000’’ and insert17 ing ‘‘$10,000’’; and

18 (B) in subparagraph (B), by striking ‘‘less19 er of $500,000 or 1 per centum of the net

20 worth of the creditor’’ and inserting ‘‘greater

21 of—

22 ‘‘(i) the amount determined by multi23 plying the maximum amount of liability

24 subparagraph (A) for each such failure to
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1 comply in an individual action by the num2 ber of members in the certified class; or

3 ‘‘(ii) the amount equal to 2 percent of

4 the creditor’’.

5 (2) TECHNICAL AND CONFORMING AMEND6 MENTS.—Section 130(a) of the Truth in Lending

7 Act is amended—

8 (A) in the matter preceding paragraph (1),

9 by striking ‘‘equal to the sum of—’’ and insert10 ing ‘‘equal to the sum of amounts determined

11 under the following paragraphs, whichever

12 apply:’’; and

13 (B) in the 4th sentence which begins after

14 the end of paragraph (4) by striking ‘‘disclo15 sures referred to in section 128’’ and inserting

16 ‘‘disclosures referred to in section 128(a)’’.

17 SEC. 5. EFFECTIVE DATE.

18 Except as provided in section 4(a), which is a clari19 fication of existing law, the requirements of this Act and

20 the amendments made by this Act shall take effect at the

21 end of the 90-day period beginning on the date of the en22 actment of this Act and shall apply to payday loans initi23 ated on or after such date and to an extension or renewal

24 of a payday loan made on or after such date.

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