[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1660 Introduced in House (IH)]






109th CONGRESS
  1st Session
                                H. R. 1660

 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

                             April 14, 2005

   Mr. Rush 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 
2005''.

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 2005 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 proffered 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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