I 
108TH CONGRESS 
1ST SESSION H. R. 2407
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 
JUNE 10, 2003
Mr. RUSH (for himself, Mr. ENGEL, Ms. MILLENDER-MCDONALD, Mr. 
GRIJALVA, Ms. SCHAKOWSKY, Mr. BRADY of Pennsylvania, Mr. THOMP-
SON of Mississippi, Ms. NORTON, Mr. CUMMINGS, Mr. JEFFERSON, Ms. 
LEE, Mr. ENGLISH, Mr. OWENS, Mr. GUTIERREZ, Mr. DAVIS of Illinois, 
Ms. DELAURO, Mr. HINOJOSA, Mr. PRICE of North Carolina, Mr. SAND-
ERS, Mr. MICHAUD, Mr. CONYERS, and Ms. EDDIE BERNICE JOHNSON 
of Texas) introduced the following bill; which was referred to the Com-
mittee 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 2003’’. 
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 2003 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: 
‘‘(x) 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 2003); 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
credit needs of, the community in which such 
business is conducted; 
(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; and 
(E) in order for an applicant to meet the 
requirements of subparagraph (D)—
(i) the applicant maintain a minimum 
of $50,000 of surety bond coverage for 
each business location maintained by the 
applicant; and 
(ii) the proceeds of any such surety 
bond coverage be available to pay any con-
sumer for any violation of any Federal or 
State law relating to deferred deposit 
loans. 
(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 
investigations 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 action or 
any civil proceeding, or use of any threat of ini-
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
(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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