ered to be made in the State in which the borrower
receives the proceeds of the loan.’’.
SEC. 4. STATE LICENSING AND REGULATION OF PAYDAY
LOANS.
(a) IN GENERAL.—For purposes of protecting the
payment system and protecting the consumers of payday
loans from fraud, abuse, unfair practices, usurious rates
of interest, and exorbitant fees, it is the sense of the Con-
gress that the deferred deposit loans should only be lawful
in States in which laws and regulations are in effect that
meet the requirements described in subsection (b), as de-
termined by the Board of Governors of the Federal Re-
serve System.
(b) MINIMUM REQUIREMENTS FOR DEFERRED DE-
POSIT LOANS.—The law of any State meets the require-
ments of this subsection if a statute in effect in such State
includes the following:
(1) LICENSING REQUIREMENTS.—
(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (C), a requirement that any
payday lender, other than a depository institu-
tion (as defined in section 19(b)(1)(A) of the
Federal Reserve Act), be licensed and regulated
by an appropriate State agency in order to con-
duct any business within such State or make
any deferred deposit loan within the State (as
determined in accordance with paragraph (12)).
(B) DEPOSITORY
INSTITUTIONS.—A re-
quirement that any depository institution which
makes deferred deposit loans in such State (as
determined in accordance with paragraph (12))
shall be subject to such statute and regulated
by an appropriate State agency with respect to
such lending activity.
(C) EXCEPTION.—A retail establishment
which occasionally cashes checks of customers
or advances credit in the form of merchandise
may be exempted from the licensing require-
ment described in subparagraph (A) if such ac-
tivity is merely incidental to the retail business
of such establishment.
(2) LICENSING
STANDARDS.—A requirement
that—
(A) in order for any person to be licensed
in the State as a payday lender, the appropriate
State agency shall review and approve—
(i) the business record and the capital
adequacy of the business seeking the li-
cense; and
(ii) the competence, experience, char-
acter, integrity, and financial responsibility
of each individual who—
(I) is a director, officer, or super-
visory employee of such business; or
(II) owns or controls, directly or
indirectly, such business (including
any person who directly or indirectly
controls more than 5 percent of the
shares or assets of the business;
(B) any record, on the part of any business
seeking the license or any person referred to in
subparagraph (A)(ii), of—
(i) any criminal activity;
(ii) any fraud or other act of personal
dishonesty;
(iii) any act, omission, or practice
which constitutes a breach of a fiduciary
duty; or
(iv) any suspension or removal, by any
agency or department of the United States
or any State, from participation in the con-
duct of any federally or State licensed or
regulated business,
be grounds for the denial of any such license by
the appropriate State agency;
(C) the applicant establish to the satisfac-
tion of the appropriate State agency that the
operation of the business at each authorized lo-
cation is in the public interest, taking into ac-
count the probable effect of such operation in
promoting the convenience of, and meeting the
credit needs of, the community in which such
business is conducted; and
(D) the applicant and licensed payday
lender meet such surety bond requirements and
minimum asset requirements as may be estab-
lished and maintained by the appropriate State
agency.
(3) PUBLIC
HEARINGS.—A requirement that
any application for a payday lender license be the
subject of a public hearing before any final deter-
mination is made with regard to such application by
the appropriate State agency.
(4) ADMINISTRATIVE
ACTION.—Authority for
the appropriate State agency to issue regulations to
carry out the purposes of such statute, investigate
and enforce compliance with the statute and such
regulations, handle complaints, suspend or revoke li-
censes issued to payday lenders and impose civil
money penalties for violations of such statute or reg-
ulations, and make public the results of any such in-
vestigations or enforcement actions and the records
of any complaints.
(5) REPORTS
AND
RECORDS.—A requirement
that licensed payday lenders—
(A) maintain such records as the appro-
priate State agency determines are necessary to
enforce compliance with the statute; and
(B) submit annual reports to the appro-
priate State agency containing such information
as the agency determines to be appropriate to
allow the agency to enforce compliance with the
statute and regulations prescribed by the agen-
cy under the statute, including a copy of all
loan documents used by the payday lender in
connection with deferred deposit loans and a fee
schedule.
(6) PROHIBITIONS.—A prohibition on—
(A) the initiation of any criminal com-
plaint, or use of any threat of initiating a crimi-
nal complaint, in connection with the failure of
any borrower to repay any deferred deposit loan
in accordance with the terms of the loan, in-
cluding, with respect to any check which formed
the basis for a deferred deposit loan, any com-
plaint relating to the making of a check drawn
on insufficient funds;
(B) any practice which is prohibited under
section 808 of the Fair Debt Collection Prac-
tices Act for a debt collector (as defined in such
Act);
(C) extending credit under any loan agree-
ment which includes any terms which are un-
conscionable or against the public interest;
(D) engaging in any unfair or deceptive
practice;
(E) accepting the repayment of any de-
ferred deposit loan if the payday lender knows
or has any reason to believe that the funds
proferred by the borrower were acquired from
the proceeds of another deferred deposit loan;
(F) refinancing or rolling over any deferred
deposit loan for any period which ends after the
date the principal of the original deferred de-
posit loan was due to be repaid in full; and
(G) imposing any additional fee or any
premium for any credit insurance offered in
conjunction with any deferred deposit loan.
(7) REQUIREMENTS RELATING TO TERMS AND
CONDITIONS.—A requirement that—
(A) the period to maturity of any deferred
deposit loan may not be less than 2 weeks for
each $50 of loan principal;
(B) the principal amount of any deferred
deposit loan may not exceed $300;
(C) any check which forms the basis of a
deferred deposit loan be stamped on the back
with an endorsement that the check has been
received and is being negotiated in connection
with a deferred deposit loan and any subse-
quent holder of the check takes it subject to all
claims and defenses of the maker;
(D) the annual percentage rate applicable
to any deferred deposit loan may not exceed the
lesser of—
(i) 36 percent; or
(ii) the maximum annual percentage
rate allowable in such State for comparable
small loans;
(E) the amount of any administrative fee
imposed in connection with making a deferred
deposit loan may not exceed $5;
(F) any unearned interest on deferred de-
posit loans which are paid before the due date
shall be repaid to the borrower on an actuarial
basis; and
(G) the amount of any fee imposed for any
check made or any electronic fund transfer au-
thorized by a borrower in connection with any
deferred deposit loan which is returned unpaid
to the payday lender due to insufficient funds
in an account of such borrower may not exceed
the lesser of—
(i) $15; or
(ii) the charge imposed by the finan-
cial institution returning the check to the
payday lender for handling such check.
(8) DISCLOSURES.—A requirement that the fol-
lowing information be disclosed in writing to a bor-
rower in connection with any deferred deposit loan
and posted in a prominent place at any location
where deferred deposit loans are made or extended:
(A) A complete description of the terms of
the loan.
(B) A complete description of the rights of
the borrower under the laws of the State, the
Truth in Lending Act, the Fair Debt Collection
Practices Act, the Electronic Fund Transfer
Act, and any other provision of law the appro-
priate State agency determines to be applicable
to such loan.
(C) A clear and conspicuous statement
that the borrower may not be subject to any
criminal action or any threat of criminal action
for making a check or authorizing an electronic
fund transfer which forms the basis for such
loan and is drawn on an account with insuffi-
cient funds.
(9) CIVIL ENFORCEMENT.—Provision for civil
remedies for violations of the statute with a min-
imum civil money penalty of $1,000 for each day of
any violation of the statute by any payday lender, in-
cluding private rights of action for any actual, con-
sequential, or liquidated damages suffered by any
borrower, or a class of borrowers, in connection with
any such violation.
(10) CRIMINAL PENALTIES FOR OPERATION OF
BUSINESS WITHOUT A LICENSE.—A criminal penalty
for anyone, other than a depository institution, mak-
ing any payday loan within the State after the effec-
tive date of such State statute without a license
issued by the State.
(11) CRIMINAL PENALTIES FOR OTHER VIOLA-
TIONS OF THE STATUTE.—A provision that any per-
son who knowingly violates any provision of the stat-
ute, or any regulation prescribed under the statute,
shall be subject to a fine of $1,000, imprisonment
for not to exceed 6 months, or both.
(12) SITUS OF LOAN.—A deferred deposit loan
is considered to be made in the State in which the
borrower will receive the proceeds of the loan.
(c) DEFINITIONS.—For purposes of this section, the
following definitions shall apply:
(1) DEPOSITORY INSTITUTION.—The term ‘‘de-
pository institution’’ has the meaning given to such
term in section 19(b)(1)(A) of the Federal Reserve
Act.
(2) OTHER TERMS.—The terms ‘‘deferred de-
posit loan’’, ‘‘payday lender’’, and ‘‘check’’ have the
meanings given to such terms in section 128(e)(1) of
the Truth in Lending Act.
Æ