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.

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.