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 high- 
cost 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 pro-
tections for consumers in connection with the making 
of such loans by uninsured entities, and for other pur-
poses. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Federal Payday Loan 
Consumer Protection Amendments of 2006’’. 
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SEC. 2. FINDINGS AND PURPOSE. 
(a) FINDINGS.—The Congress makes the following 
findings: 
(1) Payday lending is a rapidly expanding form 
of high-cost, short-term credit that uses a borrower’s 
personal check as collateral and targets individuals 
with limited access to affordable credit who are in 
desperate need of cash to meet immediate obliga-
tions. 
(2) Consumer group and regulatory studies in-
dicate that the average annual percentage rate on 
payday loans nationally ranges from 390 percent to 
780 percent for a 2-week loan and a typical
cus-
tomer has 8 to 12 loans per year at a single lender. 
(3) While State law has traditionally prohibited 
such high cost lending through usury limits, small 
loan interest caps and other restrictions, these laws 
have either been revised to exempt payday loan 
transactions, or payday lenders have affiliated with 
insured depository institutions to invoke the most fa-
vored lender principle under Federal law to cir-
cumvent interest rate regulation in State law. 
(4) Lending that fails to assess borrowers abil-
ity to repay, that requires consumers to write checks 
on insufficient funds, that encourages perpetual debt 
or default on other obligations, and that facilitates 
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violations of State law, is an unacceptable banking 
practice for insured depository institutions that 
threatens the safety of the participating institution 
and the broader banking system. 
(b) PURPOSE.—It is the purpose of this Act to en-
courage fair lending practices by prohibiting insured de-
pository institutions from engaging in any form of payday 
lending, by restricting the use of personal checks drawn 
on, or forms of withdrawals from, accounts at insured de-
pository institutions for purposes of making payday loans. 
SEC. 3. FEDERAL DEPOSIT INSURANCE ACT AMENDMENT. 
Section 18 of the Federal Deposit Insurance Act (12 
U.S.C. 1828) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(x) PROHIBITION ON CERTAIN UNSAFE AND UN-
SOUND BANKING PRACTICES.— 
‘‘(1) IN GENERAL.—An insured depository in-
stitution may not— 
‘‘(A) make any payday loan, either directly 
or indirectly; or 
‘‘(B) make any loan to any other lender 
for purposes of financing a payday loan or refi-
nancing or extending any payday loan. 
‘‘(2) PAYDAY LOAN DEFINED.—For purposes of 
this subsection, the term ‘payday loan’ means any 
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transaction in which a short-term cash advance is 
made to a consumer in exchange for— 
‘‘(A) a consumer’s personal check or share 
draft, in the amount of the advance plus a fee, 
where presentment or negotiation of such check 
or share draft is deferred by agreement of the 
parties until a designated future date; or 
‘‘(B) a consumer’s authorization to debit 
the consumer’s transaction account, in the 
amount of the advance plus a fee, where such 
account will be debited on or after a designated 
future date.’’. 
SEC. 4. PROHIBITION ON CERTAIN UNSAFE AND UNSOUND 
LENDING PRACTICES. 
(a) IN GENERAL.—Section 128 of the Truth in Lend-
ing Act (15 U.S.C. 1638) is amended by adding at the 
end the following new subsection: 
‘‘(e) PROHIBITION ON PAYDAY LOANS BASED ON 
CHECKS DRAWN ON, OR AUTHORIZED WITHDRAWALS 
FROM, INSURED DEPOSITORY INSTITUTIONS.— 
‘‘(1) IN GENERAL.—A creditor may not make a 
payday loan to any person if the creditor knows or 
has reasonable cause to believe that— 
‘‘(A) the personal check or share draft the 
creditor receives from the person, in exchange 
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for the loan, is drawn on an insured depository 
institution or insured credit union; or 
‘‘(B) the account the creditor receives per-
mission from the person to debit, in exchange 
for the loan, is a transaction account or share 
draft account at an insured depository institu-
tion or an insured credit union. 
‘‘(2) DEFINITIONS.—For purposes of this sub-
section, the following definitions shall apply: 
‘‘(A) INSURED CREDIT UNION.—The term 
‘insured credit union’ has the meaning given 
the term in section 101 of the Federal Credit 
Union Act. 
‘‘(B) 
INSURED
DEPOSITORY
INSTITU-
TION.—The term ‘insured depository institu-
tion’ has the meaning given the term in section 
3 of the Federal Deposit Insurance Act. 
‘‘(C) PAYDAY LOAN DEFINED.—The term 
‘payday loan’ means any transaction in which a 
short-term cash advance is made to a consumer 
in exchange for— 
‘‘(i) a consumer’s personal check or 
share draft, in the amount of the advance 
plus a fee, where presentment or negotia-
tion of such check or share draft is de-
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ferred by agreement of the parties until a 
designated future date; or 
‘‘(ii) a consumer’s authorization to 
debit the consumer’s transaction or share 
draft account, in the amount of the ad-
vance plus a fee, where such account will 
be debited on or after a designated future 
date.’’. 
(b) CLARIFICATION OF LIABILITY.—Section 130(a) 
of the Truth in Lending Act (15 U.S.C. 1640(a)) is 
amended by inserting after the penultimate sentence the 
following new sentence: ‘‘Any creditor who violates section 
128(e) with respect to any person shall be liable to such 
person under paragraphs (1), (2) and (3).’’. 
(c) FEDERAL RESERVE BOARD STUDY OF ADVER-
TISING
AND WARNING LABELS
FOR HIGH-INTEREST 
LOANS.— 
(1) STUDY
REQUIRED.—The Board of Gov-
ernors of the Federal Reserve System shall conduct 
a study to determine the most effective way to re-
quire— 
(A) advertising of the finance charge and the 
annual percentage rate; and 
(B) the inclusion of a high-interest warning 
label, 
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on all applications and contracts for credit (as de-
fined in section 103 of the Truth in Lending Act) 
bearing interest at an annual percentage rate in ex-
cess of 36 percent. 
(2) REPORT TO THE CONGRESS.—The Board of 
Governors of the Federal Reserve System shall sub-
mit a report to the Congress before the end of the 
6-month period beginning on the date of the enact-
ment of this Act containing the findings and conclu-
sions of the Board with respect to the study required 
under subsection (a), together with such rec-
ommendations for legislative or administrative action 
as the Board may determines to be appropriate. 
SEC. 5. EFFECTIVE DATE. 
The requirements of this Act and the amendments 
made by this Act shall take effect at the end of the 90- 
day period beginning on the date of the enactment of this 
Act and shall apply to payday loans initiated on or after 
such date and to an extension or renewal of a payday loan 
made on or after such date. 
Æ 
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