[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1055 Introduced in House (IH)]
107th CONGRESS
1st Session
H. R. 1055
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
March 15, 2001
Mr. LaFalce (for himself, Mr. Kanjorski, Mrs. Maloney of New York, Mr.
Gutierrez, Ms. Lee, Mrs. Jones of Ohio, Mr. Capuano, Mr. Clay, Mr.
Hinchey, and Ms. Schakowsky) 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 protections for consumers in connection with
the making of such loans by uninsured entities, 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 ``Federal Payday Loan Consumer
Protection Amendments of 2001''.
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 obligations.
(2) Consumer group studies indicate that the average annual
percentage rate on payday loans nationally is 474 percent for a
two-week loan, and that a typical payday loan is renewed ten or
more times before repayment at equivalent annual interest rates
that exceed 1000 percent.
(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 favored lender principle under Federal law to circumvent
interest rate regulation in State law.
(4) Lending that fails to assess borrowers ability to
repay, that requires consumers to write checks on insufficient
funds, that encourages perpetual debt or default on other
obligations, and that facilitates 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.
(5) While Congress clearly intended for the credit
protections of the Truth in Lending Act to apply broadly to all
credit transactions, including payday loan transactions, and
such application to payday loan transactions has been correctly
affirmed in recent court decisions, the provision of Truth in
Lending credit disclosures is not standard practice among
payday lenders across the country and should be a more explicit
requirement in Federal statutes and regulations.
(b) Purpose.--It is the purpose of this Act to encourage fair
lending practices by prohibiting insured depository 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 depository institutions for purposes of making payday loans,
and by clarifying what the Congress has always intended by explicitly
stating in the Truth in Lending Act that appropriate interest rate
disclosure and other consumer protections of the Act do apply to all
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 following new subsection:
``(v) Prohibition on Certain Unsafe and Unsound Banking
Practices.--
``(1) In general.--An insured depository institution 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 refinancing or
extending any payday loan.
``(2) Payday loan defined.--For purposes of this
subsection, 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 negotiation of such check
or share draft is deferred by agreement of the
parties until a designated future date; or
``(ii) 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. TRUTH IN LENDING ACT AMENDMENTS.
(a) Clarification of Application to Payday Loans.--For purposes of
clarifying that payday loans have always been within the definition of
credit, section 103(e) of the Consumer Credit Protection Act (15 U.S.C.
1602(e)) is amended, effective as of the date of the enactment of this
Act, by inserting before the period at the end ``, including any payday
loan (as defined in section 18(v)(2) of the Federal Deposit Insurance
Act)''.
(b) Prohibition on Certain Unsafe and Unsound Lending Practices.--
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) 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 for the
loan, is drawn on an insured depository institution or
insured credit union; or
``(B) the account the creditor receives permission
from the person to debit, in exchange for the loan, is
a transaction account or share draft account at an
insured depository institution or an insured credit
union.
``(2) Definitions.--For purposes of this subsection, 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 institution.--The term
`insured depository institution' 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 negotiation of such check
or share draft is deferred 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 advance plus a
fee, where such account will be debited on or
after a designated future date.''.
(c) Civil Liability.--
(1) In general.--Section 130(a)(2) of the Truth in Lending
Act (15 U.S.C. 1640(a)(2)) is amended--
(A) in subparagraph (A)--
(i) by inserting ``clauses (i) and (ii)
of'' after ``except that the liability under'';
(ii) by striking ``$100'' and inserting
``$200''; and
(iii) by striking ``$1,000'' and inserting
``$10,000''; and
(B) in subparagraph (B), by striking ``lesser of
$500,000 or 1 per centum of the net worth of the
creditor'' and inserting ``greater of--
``(i) the amount determined by multiplying
the maximum amount of liability subparagraph
(A) for each such failure to comply in an
individual action by the number of members in
the certified class; or
``(ii) the amount equal to 2 percent of the
creditor''.
(2) Technical and conforming amendments.--Section 130(a) of
the Truth in Lending Act is amended--
(A) in the matter preceding paragraph (1), by
striking ``equal to the sum of--'' and inserting
``equal to the sum of amounts determined under the
following paragraphs, whichever apply:''; and
(B) in the 4th sentence which begins after the end
of paragraph (4) by striking ``disclosures referred to
in section 128'' and inserting ``disclosures referred
to in section 128(a)''.
SEC. 5. EFFECTIVE DATE.
Except as provided in section 4(a), which is a clarification of
existing law, 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.
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