[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2407 Introduced in House (IH)]
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. Thompson 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. Sanders, Mr. Michaud, Mr. Conyers, and
Ms. Eddie Bernice Johnson of Texas) 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 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.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Payday Borrower Protection 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 Lending 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 subsection, the
following definitions shall apply:
``(A) Check.--The term `check' means any negotiable
demand draft drawn on or payable through an office of a
depository institution (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 transaction in which credit is
extended by a payday lender, for a specified period of
time, upon receipt by the lender of--
``(i) a check made by the borrower for the
amount of the credit extended, the presentment
or negotiation of which, by mutual 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 electronic
fund transfer at the end of the specified
period from the account of the borrower for the
amount of the credit extended.
``(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 authorized 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 Borrower 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 applications, solicitations, or
advertisements relating to such loans.
``(3) Situs of loan.--For purposes of paragraph (2), a
deferred deposit loan shall be considered 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 period 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 following new section:
``(x) Payday Loans.--
``(1) Loans to noncompliant payday lenders prohibited.--An
insured depository institution may not--
``(A) make any deferred deposit loan, either
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 applicable
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 Protection 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 borrower from such payday lender will
receive the proceeds of any such deferred deposit loan.
``(2) Situs of loan.--For purposes of paragraph (1) and
determining compliance with this subsection, the Truth in
Lending Act, the Electronic Fund Transfer Act, and the law of
any State, a deferred deposit loan shall be considered 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, deferred
deposit loans shall only be lawful in States in which laws and
regulations are in effect that meet the requirements described in
subsection (b), as determined by the Board of Governors of the Federal
Reserve System.
(b) Minimum Requirements for Deferred Deposit Loans.--The law of
any State meets the requirements of this subsection if a statute in
effect in such State includes the following:
(1) Licensing requirements.--
(A) In general.--Subject to subparagraphs (B) and
(C), a requirement that any payday lender, other than a
depository institution (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 conduct 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 requirement 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 license;
and
(ii) the competence, experience, character,
integrity, and financial responsibility of each
individual who--
(I) is a director, officer, or
supervisory 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 conduct 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 satisfaction of
the appropriate State agency that the operation of the
business at each authorized location is in the public
interest, taking into account 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 established 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 consumer 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 determination 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 licenses issued to payday lenders and impose civil money
penalties for violations of such statute or regulations, 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 appropriate State
agency determines are necessary to enforce compliance
with the statute; and
(B) submit annual reports to the appropriate 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 agency 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 initiating
any such criminal action or civil proceeding, 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 collection of such debt and actual damages),
including any criminal action or civil proceeding, or a
threat of any such action or proceeding, relating 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 Practices Act for a
debt collector (as defined in such Act);
(C) extending credit under any loan agreement which
includes any terms which are unconscionable or against
the public interest;
(D) engaging in any unfair or deceptive practice;
(E) accepting the repayment of any deferred 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 deposit 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 customer;
(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 proceeding.
(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 subsequent 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 deposit 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 authorized 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 financial
institution returning the check to the payday
lender for handling such check.
(8) Disclosures.--A requirement that the following
information be disclosed in writing to a borrower 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 appropriate 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 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 collection of such
debt and actual damages), including any criminal action
or civil proceeding, or a threat of any such action or
proceeding, relating 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.
(9) Civil enforcement.--Provision for civil penalties for
violations of the statute with a minimum 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 persons, for actual, consequential, and punitive
damages, 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, making any payday loan within the State
after the effective date of such State statute without a
license issued by the State.
(12) Criminal penalties for other violations of the
statute.--A provision that any person who knowingly violates
any provision of the statute, 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 ``depository
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 deposit 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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