The Amazing, Elastic, Ever-Expanding Exportation Doctrine and Its Effect on Predatory Lending Regulation

Recent dramatic growth in predatory lending practices has reinvigorated calls for more effective regulation of consumer credit, primarily at the state level. This paper argues that a banking law principle known as the Exportation Doctrine has rendered individual state laws largely ineffectual in curbing predatory lending. However, this paper concludes that the expanded Exportation Doctrine, with a little bit of tweaking, could be shaped into a potent legal tool for regulating predatory lending, more effective than individual state legislation currently under consideration. The Exportation Doctrine has evolved from a discrete statutory privilege enacted during the Civil War to promote the national bank system, to an expansive legal doctrine allowing almost any type of corporate entity to establish a nationwide consumer lending program unrestrained by individual state consumer credit laws. This evolution was the result of a confluence of forces, including: individual depository institutions challenging various banking regulations; banking regulatory agencies accommodating their constituencies; power plays among the federal banking agencies, as well as among the state and the federal banking agencies; occasional Congressional actions in discrete, often seemingly unrelated areas of banking law; and courts almost uniformly deferring to the judgments of the federal banking agencies in issues related to the regulation of financial institutions. The Doctrine originated in a federal banking law permitting national banks to charge interest at the rate allowed under the laws of the state where the bank is located (12 U.S.C. Section 85). This paper traces the historical expansion of the Exportation Doctrine along three distinct dimensions. First, the geographic reach of the Doctrine was expanded, to transform the "location" of a bank from a meaningful restrictive concept to matter of choice. Second, the substantive scope of the Doctrine was expanded, as the term "interest" was interpreted to include not just numerical interest rates, but all credit terms "material to the determination of the interest rate." Third, the orbit of the beneficiaries of the Doctrine was expanded, initially to include state banks and savings and loan associations, and, more recently, to include nonbank corporate entities acquiring "nonbank banks" (such as credit card banks, unitary thrifts, or industrial loan companies) or entering into contractual arrangements with banks to offer products such as cobranded credit cards, refund anticipation loans, and payday loans. After describing the evolution of the Doctrine, this paper analyzes whether the various dimensions of the expansion are justified under basic principles of banking law. The paper concludes that the expansion of the geographic reach and substantive scope of the Doctrine is compatible with banking law doctrine and probably not susceptible to legal challenge. However, the expansion of the orbit of the beneficiaries of the Doctrine is incompatible with the separation of banking and commerce, and thus susceptible to legal challenge. Nevertheless, after examining the recent actions of the federal banking regulators in curbing predatory lending practices conducted by depositary institutions, this paper concludes that a robust Exportation Doctrine might be the most effective legal mechanism that exists for curbing predatory lending practices.