I
107TH CONGRESS
1ST SESSION
H. R. 1319
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
MARCH 29, 2001
Mr. RUSH (for himself, Mr. ENGLISH, Ms. HART, Mr. OLVER, Mr. TOWNS,
Ms. BROWN of Florida, Mrs. CHRISTENSEN, Mr. DAVIS of Illinois, Mr.
THOMPSON of Mississippi, Mr. BRADY of Pennsylvania, Mrs. JONES of
Ohio, Ms. LEE, Ms. MCKINNEY, Ms. SCHAKOWSKY, Mr. FRANK, Mr.
PASCRELL, Ms. JACKSON-LEE of Texas, Mr. LUTHER, Mr. HINOJOSA,
Mr. GUTIERREZ, Mr. CUMMINGS, Mrs. MEEK of Florida, Ms. NORTON,
Mr. GONZALEZ, and Mrs. TAUSCHER) introduced the following bill; which
was referred to the Committee on 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 exorbi-
tant 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.
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 ‘‘Payday Borrower Pro-
tection Act of 2001’’.
SEC. 2. PAYDAY LOANS PROHIBITED UNLESS AUTHORIZED
PURSUANT TO STATE LAW THAT LICENSES
AND REGULATES PAYDAY LENDERS.
(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) DEFERRED DEPOSIT LOANS.—
‘‘(1) DEFINITIONS.—For purposes of this sub-
section, the following definitions shall apply:
‘‘(A) CHECK.—The term ‘check’ means
any negotiable demand draft drawn on or pay-
able through an office of a depository institu-
tion (as defined in section 19(b)(1)(A) of the
Federal Reserve Act) located in the United
States.
‘‘(B) DEFERRED
DEPOSIT
LOAN.—The
term ‘deferred deposit loan’ means a trans-
action in which credit is extended by a payday
lender, for a specified period of time, upon re-
ceipt by the lender of—
(i) a check made by the borrower for
the amount of the credit extended, the pre-
sentment or negotiation of which, by mu-
tual agreement of the lender and borrower,
will be deferred for such specified period;
or
(ii) authorization from the borrower
for the payday lender to initiate an elec-
tronic fund transfer at the end of the spec-
ified period from the account of the bor-
rower for the amount of the credit ex-
tended.
‘‘(C) PAYDAY LENDER.—The term ‘payday
lender’ means any person who extends credit to
any other person through a deferred deposit
loan.
‘‘(2) PAYDAY LOANS PROHIBITED UNLESS AU-
THORIZED UNDER STATE LAWS THAT LICENSE AND
REGULATE SUCH LENDING.—No person may engage
in the business of making deferred deposit loans in
any State unless—
‘‘(A) expressly authorized to do so under a
law of such State that the Board determines at
least meets, if not exceeds, all the requirements
described in section 4(b) of the Payday Bor-
rower Protection Act of 2001 with respect to
deferred deposit loans; and
‘‘(B) such person maintains policies and
procedures designed to prevent such person
from violating any requirement of this title with
regard to such loans or with regard to applica-
tions, solicitations, or advertisements relating to
such loans.
‘‘(3) SITUS OF LOAN.—For purposes of para-
graph (2), a deferred deposit loan shall be consid-
ered to be made in the State in which the borrower
receives the proceeds of the loan.’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply after the end of the 10-day pe-
riod beginning on the date of the enactment of this Act.
SEC. 3. REGULATION OF INVOLVEMENT OF DEPOSITORY
INSTITUTIONS IN PAYDAY LENDING.
Section 18 of the Federal Deposit Insurance Act (12
U.S.C. 1828) is amended by adding at the end the fol-
lowing new section:
‘‘(t) PAYDAY LOANS.—
‘‘(1) LOANS TO NONCOMPLIANT PAYDAY LEND-
ERS PROHIBITED.—An insured depository institution
may not—
‘‘(A) make any deferred deposit loan, ei-
ther directly or through any agent, unless—
‘‘(i) such loan is in full compliance
with the law of the State in which such
loan is made; and
‘‘(ii) the annual interest rate applica-
ble with respect to such loan is less than
36 percent (as determined without taking
into account any administrative fee which
meets 
the 
requirements 
of 
section
4(b)(7)(E) of the Payday Borrowers Pro-
tection Act of 2001); or
‘‘(B) make any loan to any payday lender
for purposes of financing deferred deposit loans
unless the depository institution ascertains that
such lender is in full compliance with the Truth
in Lending Act, the Electronic Fund Transfer
Act, and the law of the State in which any bor-
rower from such payday lender will receive the
proceeds of any such deferred deposit loan.
‘‘(2) SITUS OF LOAN.—For purposes of para-
graph (1) and determining compliance with this sub-
section, the Truth in Lending Act, the Electronic
Fund Transfer Act, and the law of any State, a de-
ferred deposit loan shall be considered to be made
in the State in which the borrower receives the pro-
ceeds 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, deferred deposit loans
shall only be lawful in States in which laws and regula-
tions are in effect that meet the requirements described
in subsection (b), as determined by the Board of Gov-
ernors of the Federal Reserve 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.
(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
tiating any such criminal action or civil pro-
ceeding, in connection with the failure of any
borrower to repay any deferred deposit loan in
accordance with the terms of the loan (other
than a proceeding directly related to the collec-
tion of such debt and actual damages), includ-
ing any criminal action or civil proceeding, or a
threat of any such action or proceeding, relat-
ing to the act of a customer in drawing a check
or authorizing an electronic fund transfer which
formed the basis for a payday loan and is
drawn on an account with 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, or initiating a new deferred de-
posit loan unless 30 days has elapsed from the
termination of any prior deferred deposit loan
from that payday lender (or any affiliate or
other associate of the payday lender) to the cus-
tomer;
(G) imposing any additional fee or any
premium for any credit insurance offered in
conjunction with any deferred deposit loan; and
(H) including any clause in the note or
other document related to the deferred deposit
loan which requires the consumer to submit any
claim or defense relating to the transaction to
binding arbitration or other nonjudicial pro-
ceeding.
(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 interest 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 civil proceeding, or the use of
any threat of initiating any such criminal action
or civil proceeding, in connection with the fail-
ure of any borrower to repay any deferred de-
posit loan in accordance with the terms of the
loan (other than a proceeding directly related to
the collection of such debt and actual damages),
including any criminal action or civil pro-
ceeding, or a threat of any such action or pro-
ceeding, relating to the act of a customer in
drawing a check or authorizing an electronic
fund transfer which formed the basis for a pay-
day loan and is drawn on an account with in-
sufficient funds.
(9) CIVIL ENFORCEMENT.—Provision for civil
penalties for violations of the statute with a min-
imum civil money penalty of $1,000 for any violation
of the statute by any payday lender.
(10) PRIVATE RIGHT OF ACTION.—Provisions
that make any person who violates any provision of
the statute with respect to any other person liable to
such other person, or to a class of such other per-
sons, for actual, consequential, and punitive dam-
ages, statutory damages of $1,000 for each violation,
and costs and attorney’s fees.
(11) 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.
(12) 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.
(13) 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.
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