[House Report 115-538]
[From the U.S. Government Publishing Office]


115th Congress }                                          { REPORT
                        HOUSE OF REPRESENTATIVES
  2d Session   }                                          { 115-538

======================================================================
 
           PROTECTING CONSUMERS' ACCESS TO CREDIT ACT OF 2017

                                _______
                                

January 30, 2018.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 3299]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 3299) to amend the Revised Statutes, the Home 
Owners' Loan Act, the Federal Credit Union Act, and the Federal 
Deposit Insurance Act to require the rate of interest on 
certain loans remain unchanged after transfer of the loan, and 
for other purposes, having considered the same, report 
favorably thereon without amendment and recommend that the bill 
do pass.

                          Purpose and Summary

    Introduced on July 19, 2017 by Representative Patrick 
McHenry, H.R. 3299, the ``Protecting Consumers' Access to 
Credit Act of 2017'' clarifies several laws to ensure that bank 
loans that are valid as to their maximum rate of interest in 
accordance with federal law when made shall remain valid with 
respect to that rate regardless of whether a bank has 
subsequently sold or assigned the loan to a third party.

                  Background and Need for Legislation

    The 2015 Second Circuit Court of Appeals' opinion in Madden 
v. Midland Funding, LLC, (786 F.3d 246 (2015)) held that while 
the National Bank Act (NBA) allowed a federally chartered bank 
to charge interest under the laws of its home state on loans it 
makes nationwide, non-banks that bought those loans could not 
continue to collect that interest because non-banks are 
generally subject to the limits of the borrower's state. In 
short, the Second Circuit did not apply the ``valid when made'' 
doctrine but instead held that the NBA did not preempt state 
usury laws because Midland was not a national bank, or a 
subsidiary or agent of a national bank, but rather was a 
``third party.'' In June 2016, the U.S. Supreme Court declined 
to grant certiorari to review the Second Circuit's decision.
    The Second Circuit's decision has caused considerable 
uncertainty and risk for many types of bank lending programs, 
including ``bank model'' marketplace lending where national 
banks originate loans and then transfer them to nonbank third 
parties. Being able to offer consistent terms nationwide is 
vital to scale the marketplace lending business, which in turn 
allows lenders to access cheaper investment capital and pass 
along those savings to borrowers. In addition, the Madden 
ruling threatens access to traditional bank credit. Selling 
debt to non-bank entities in the secondary loan market is a 
significant part of how banks hedge risk, preserve balance-
sheet capacity and maintain liquidity in the loan market. 
Jeopardizing this common practice of selling debt could force 
banks to become more restrictive as to whom they offer credit, 
as well as increase interest rates to compensate for the lost 
revenue and diminished liquidity.
    The Madden decision has already created some market 
uncertainty and has the potential to affect all types of 
securitized debt or whole loan sales of all types, which 
impacts access to credit and risk mitigation. In the two years 
since the Madden decision, there is now a lack of uniform 
interpretation of banking law across the country.
    In an October 5, 2017, letter of support for H.R. 3299, the 
National Federation of Independent Business, National Small 
Business Association, Small Business Entrepreneurship Council, 
Innovative Lending Platform Association, Marketplace Lending 
Association, Financial Innovation Now, Financial Services 
Roundtable, Independent Community Bankers of America, American 
Bankers Association, Consumer Bankers Association, Clearing 
House Association, and U.S. Chamber of Commerce expressed their 
support for H.R. 3299, stating:

          [H.R. 3299] would provide greater certainty and 
        liquidity in commercial credit markets and thereby have 
        a positive impact on access to credit for both 
        consumers and small businesses.
          The Protecting Consumers' Access to Credit Act would 
        codify the ``valid-when-made'' doctrine, a longstanding 
        legal principle, reaffirmed in 2016 by the U.S. 
        Solicitor General, that if a loan is valid when it is 
        made with respect to its interest rate, then it does 
        not become invalid or unenforceable when assigned to 
        another party. This bedrock common law principle has 
        been a cornerstone of U.S. banking law for over 100 
        years. It provides critical legal certainty necessary 
        for the effective and efficient functioning of the 
        credit markets, thereby benefiting both individuals and 
        small businesses
          . . . The bill's reaffirmation of the ``valid-when-
        made'' principle also could serve to encourage 
        innovative partnerships between banks and financial 
        technology companies that purchase bank loans or 
        interests in securitizations of such loans, further 
        expanding access to credit for U.S. small businesses 
        and consumers.

                                Hearings

    The Committee on Financial Services held a hearing 
examining matters relating to H.R. 3299 on April 26, 2017 and 
April 28, 2017.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
December 12, 2017 and ordered H.R. 435 to be reported favorably 
by a recorded vote of 42 yeas to 17 nays (Record vote no. FC-
116), a quorum being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole recorded vote was on a motion by Chairman Hensarling to 
report the bill favorably to the House without amendment. The 
motion was agreed to by a recorded vote of 42 yeas to 17 nays 
(Record vote no. FC-116), a quorum being present.


                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 3299 
codifies the legal doctrine of ``valid when made,'' a common-
law contractual doctrine that preserves the lawful interest 
rate on a loan originated by a bank, even if the loan is sold, 
assigned, or transferred to a non-bank third party.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, January 11, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3299, the 
Protecting Consumers Access to Credit Act of 2017.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Sarah Puro.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 3299--Protecting Consumers' Access to Credit Act of 2017

    H.R. 3299 would overturn a decision of the Second Circuit 
Court of appeals and permit nonbank financial institutions to 
charge interest rates that exceed certain state caps if a bank 
makes a valid loan and then sells or transfers the loan to a 
nonbank. The bill would not affect the operations or actions of 
federal financial regulators. As a result, CBO estimates that 
enacting H.R. 3299 would have no effect on the federal budget.
    Enacting the bill would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply. CBO 
estimates that enacting H.R. 3299 would not increase net direct 
spending or on-budget deficits in any of the four consecutive 
10-year periods beginning in 2028.
    H.R. 3299 would preempt state usury laws that set interest 
rate caps and that regulate the validity of loans sold, 
assigned, or transferred to a third party. Such loans would 
retain their maximum rate of interest as set by the loan's 
originator regardless of whether the loan is sold, assigned, or 
transferred to a third party located in a different state. That 
preemption would be a mandate as defined in the Unfunded 
Mandates Reform Act (UMRA). CBO estimates that the preemption 
would impose no costs on state governments. Although it would 
limit the application of state laws, it would impose no duty on 
states that would result in additional spending.
    H.R. 3299 contains no private-sector mandates as defined in 
UMRA.
    The CBO staff contacts for this estimate are Sarah Puro 
(for federal costs) and Rachel Austin (for mandates). The 
estimate was approved by H. Samuel Papenfuss, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed 
rulemakings: The Committee estimates that the bill requires no 
directed rulemakings within the meaning of such section.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 3299 as the Protecting Consumers' 
Access to Credit Act of 2017.

Section 2. Findings

    This section restates the common law doctrine of ``valid 
when made'' as found by Congress.

Section 3. Rate of interest after transfer of loan

    This section amends Section 5197 of the Revised Statutes 
(12 U.S.C. 85), Section 4(g) of the Home Owners' Loan Act (12 
U.S.C. 1463(g)), Section 205(g) of the Federal Credit Union Act 
(12 U.S.C. 1785(g)), and Section 27 of the Federal Deposit 
Insurance Act (12 U.S.C. 1831d) to codify the legal doctrine of 
``valid when made,'' which preserves the lawful interest rate 
on a loan originated by a bank, even if the loan is sold, 
assigned, or transferred to a non-bank third party.

Section 4. Rule of construction

    This section clarifies that nothing in the Act may be 
construed as limiting the authority or jurisdiction of the 
Office of the Comptroller of the Currency, the Federal Deposit 
Insurance Corporation, the Board of Governors of the Federal 
Reserve System, the Bureau of Consumer Financial Protection, or 
the National Credit Union Administration.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

                 REVISED STATUTES OF THE UNITED STATES



           *       *       *       *       *       *       *
TITLE LXII--NATIONAL BANKS.

           *       *       *       *       *       *       *


CHAPTER THREE--REGULATION OF THE BANKING BUSINESS.

           *       *       *       *       *       *       *


  Sec. 5197. Any association may take, receive, reserve, and 
charge on any loan or discount made, or upon any notes, bills 
of exchange, or other evidences of debt, interest at the rate 
allowed by the laws of the State, Territory, or District where 
the bank is located, or at a rate of 1 per centum in excess of 
the discount rate on ninety-day commercial paper in effect at 
the Federal reserve bank in the Federal reserve district where 
the bank is located, whichever may be the greater, and no more, 
except that where by the laws of any State a different rate is 
limited for banks organized under State laws, the rate so 
limited shall be allowed for associations organized or existing 
in any such State under this title. When no rate is fixed by 
the laws of the State, or Territory, or District, the bank may 
take, receive, reserve, or charge a rate not exceeding 7 per 
centum, or 1 per centum in excess of the discount rate on 
ninety-day commercial paper in effect at the Federal reserve 
bank in the Federal reserve district where the bank is located, 
whichever may be the greater, and such interest may be taken in 
advance, reckoning the days for which the note, bill, or other 
evidence of debt has to run. The maximum amount of interest or 
discount to be charged at a branch of an association located 
outside of the States of the United States and the District of 
Columbia shall be at the rate allowed by the laws of the 
country, territory, dependency, province, dominion, insular 
possession, or other political subdivision where the branch is 
located. And the purchase, discount, or sale of a bona-fide 
bill of exchange, payable at another place than the place of 
such purchase, discount, or sale, at not more than the current 
rate of exchange for sight-drafts in addition to the interest, 
shall not be considered as taking or receiving a greater rate 
of interest. A loan that is valid when made as to its maximum 
rate of interest in accordance with this section shall remain 
valid with respect to such rate regardless of whether the loan 
is subsequently sold, assigned, or otherwise transferred to a 
third party, and may be enforced by such third party 
notwithstanding any State law to the contrary.

           *       *       *       *       *       *       *

                              ----------                              


                         HOME OWNERS' LOAN ACT



           *       *       *       *       *       *       *
SEC. 4. SUPERVISION OF SAVINGS ASSOCIATIONS.

  (a) Savings Associations.--
          (1) Examination and safe and sound operation.--
                  (A) Federal savings associations.--The 
                Comptroller shall provide for the examination 
                and safe and sound operation of Federal savings 
                associations.
                  (B) State savings associations.--The 
                Corporation shall provide for the examination 
                and safe and sound operation of State savings 
                associations.
          (2) Regulations for savings associations.--The 
        Comptroller may prescribe regulations with respect to 
        savings associations, as the Comptroller determines to 
        be appropriate to carry out the purposes of this Act.
          (3) Safe and sound housing credit to be encouraged.--
        The Comptroller and the Corporation shall exercise all 
        powers granted to the Comptroller and the Corporation 
        under this Act so as to encourage savings associations 
        to provide credit for housing safely and soundly.
  (b) Accounting and Disclosure.--
          (1) In general.--The Comptroller shall, by 
        regulation, prescribe uniform accounting and disclosure 
        standards for savings associations, to be used in 
        determining savings associations' compliance with all 
        applicable regulations.
          (2) Specific requirements for accounting standards.--
        Subject to section 5(t), the uniform accounting 
        standards prescribed under paragraph (1) shall--
                  (A) incorporate generally accepted accounting 
                principles to the same degree that such 
                principles are used to determine compliance 
                with regulations prescribed by the Federal 
                banking agencies; and
                  (B) allow for no deviation from full 
                compliance with such standards as are in effect 
                after December 31, 1993.
          (3) Authority to prescribe more stringent accounting 
        standards.--The Comptroller may at any time prescribe 
        accounting standards more stringent than required under 
        paragraph (2) if the Comptroller determines that the 
        more stringent standards are necessary to ensure the 
        safe and sound operation of savings associations.
  (c) Stringency of Standards.--The regulations of the 
Comptroller and the policies of the Comptroller and the 
Corporation governing the safe and sound operation of savings 
associations, including regulations and policies governing 
asset classification and appraisals, shall be no less stringent 
than those established by the Comptroller for national banks.
  (d) Investment of Certain Funds in Accounts of Savings 
Associations.--The savings accounts and share accounts of 
savings associations insured by the Corporation shall be lawful 
investments and may be accepted as security for all public 
funds of the United States, fiduciary and trust funds under the 
authority or control of the United States or any officer 
thereof, and for the funds of all corporations organized under 
the laws of the United States (subject to any regulatory 
authority otherwise applicable), regardless of any limitation 
of law upon the investment of any such funds or upon the 
acceptance of security for the investment or deposit of any of 
such funds.
  (e) Participation by Savings Associations in Lotteries and 
Related Activities.--
          (1) Participation prohibited.--No savings association 
        may--
                  (A) deal in lottery tickets;
                  (B) deal in bets used as a means or 
                substitute for participation in a lottery;
                  (C) announce, advertise, or publicize the 
                existence of any lottery; or
                  (D) announce, advertise, or publicize the 
                existence or identity of any participant or 
                winner, as such, in a lottery.
          (2) Use of facilities prohibited.--No savings 
        association may permit--
                  (A) the use of any part of any of its own 
                offices by any person for any purpose forbidden 
                to the institution under paragraph (1); or
                  (B) direct access by the public from any of 
                its own offices to any premises used by any 
                person for any purpose forbidden to the 
                institution under paragraph (1).
          (3) Definitions.--For purposes of this subsection--
                  (A) Deal in.--The term ``deal in'' includes 
                making, taking, buying, selling, redeeming, or 
                collecting.
                  (B) Lottery.--The term ``lottery'' includes 
                any arrangement, other than a savings promotion 
                raffle, under which--
                          (i) 3 or more persons (hereafter in 
                        this subparagraph referred to as the 
                        ``participants'') advance money or 
                        credit to another in exchange for the 
                        possibility or expectation that 1 or 
                        more but not all of the participants 
                        (hereafter in this paragraph referred 
                        to as the ``winners'') will receive by 
                        reason of those participants' advances 
                        more than the amounts those 
                        participants have advanced; and
                          (ii) the identity of the winners is 
                        determined by any means which 
                        includes--
                                  (I) a random selection;
                                  (II) a game, race, or 
                                contest; or
                                  (III) any record or 
                                tabulation of the result of 1 
                                or more events in which any 
                                participant has no interest 
                                except for the bearing that 
                                event has on the possibility 
                                that the participant may become 
                                a winner.
                  (C) Lottery ticket.--The term ``lottery 
                ticket'' includes any right, privilege, or 
                possibility (and any ticket, receipt, record, 
                or other evidence of any such right, privilege, 
                or possibility) of becoming a winner in a 
                lottery.
                  (D) Savings promotion raffle.--The term 
                ``savings promotion raffle'' means a contest in 
                which the sole consideration required for a 
                chance of winning designated prizes is obtained 
                by the deposit of a specified amount of money 
                in a savings account or other savings program, 
                where each ticket or entry has an equal chance 
                of being drawn, such contest being subject to 
                regulations that may from time to time be 
                promulgated by the appropriate prudential 
                regulator (as defined in section 1002 of the 
                Consumer Financial Protection Act of 2010 (12 
                U.S.C. 5481)).
          (4) Exception for state lotteries.--Paragraphs (1) 
        and (2) shall not apply with respect to any savings 
        association accepting funds from, or performing any 
        lawful services for, any State operating a lottery, or 
        any officer or employee of such a State who is charged 
        with administering the lottery.
          (5) Regulations.--The Comptroller shall prescribe 
        such regulations as may be necessary to provide for 
        enforcement of this subsection and to prevent any 
        evasion of any provision of this subsection.
  (f) Federally Related Mortgage Loan Disclosures.--A savings 
association may not make a federally related mortgage loan to 
an agent, trustee, nominee, or other person acting in a 
fiduciary capacity without requiring that the identity of the 
person receiving the beneficial interest of such loan shall at 
all times be revealed to the savings association. At the 
request of the appropriate Federal banking agency, the savings 
association shall report to the appropriate Federal banking 
agency the identity of such person and the nature and amount of 
the loan.
  (g) Preemption of State Usury Laws.--(1) Notwithstanding any 
State law, a savings association may charge interest on any 
extension of credit at a rate of not more than 1 percent in 
excess of the discount rate on 90-day commercial paper in 
effect at the Federal Reserve bank in the Federal Reserve 
district in which such savings association is located or at the 
rate allowed by the laws of the State in which such savings 
association is located, whichever is greater.
  (2) If the rate prescribed in paragraph (1) exceeds the rate 
such savings association would be permitted to charge in the 
absence of this subsection, the receiving or charging a greater 
rate of interest than that prescribed by paragraph (1), when 
knowingly done, shall be deemed a forfeiture of the entire 
interest which the extension of credit carries with it, or 
which has been agreed to be paid thereon. If such greater rate 
of interest has been paid, the person who paid it may recover, 
in a civil action commenced in a court of appropriate 
jurisdiction not later than 2 years after the date of such 
payment, an amount equal to twice the amount of the interest 
paid from the savings association taking or receiving such 
interest.
  (3) A loan that is valid when made as to its maximum rate of 
interest in accordance with this subsection shall remain valid 
with respect to such rate regardless of whether the loan is 
subsequently sold, assigned, or otherwise transferred to a 
third party, and may be enforced by such third party 
notwithstanding any State law to the contrary.
  (h) Form and Maturity of Securities.--No savings association 
shall--
          (1) issue securities which guarantee a definite 
        maturity except with the specific approval of the 
        appropriate Federal banking agency, or
          (2) issue any securities the form of which has not 
        been approved by the appropriate Federal banking 
        agency.

           *       *       *       *       *       *       *

                              ----------                              


                        FEDERAL CREDIT UNION ACT



           *       *       *       *       *       *       *
TITLE II--SHARE INSURANCE

           *       *       *       *       *       *       *


              requirements governing insured credit unions

  Sec. 205. (a) Insurance Logo.--
          (1) Insured credit unions.--
                  (A) In general.--Each insured credit union 
                shall display at each place of business 
                maintained by that credit union a sign or signs 
                relating to the insurance of the share accounts 
                of the institution, in accordance with 
                regulations to be prescribed by the Board.
                  (B) Statement to be included.--Each sign 
                required under subparagraph (A) shall include a 
                statement that insured share accounts are 
                backed by the full faith and credit of the 
                United States Government.
          (2) Regulations.--The Board shall prescribe 
        regulations to carry out this subsection, including 
        regulations governing the substance of signs required 
        by paragraph (1) and the manner of display or use of 
        such signs.
          (3) Penalties.--For each day that an insured credit 
        union continues to violate this subsection or any 
        regulation issued under this subsection, it shall be 
        subject to a penalty of not more than $100, which the 
        Board may recover for its use.
  (b)(1) Except as provided in paragraph (2), no insured credit 
union shall, without the prior approval of the Board--
          (A) merge or consolidate with any noninsured credit 
        union or institution;
          (B) assume liability to pay any member accounts in, 
        or similar liabilities of, any noninsured credit union 
        or institution;
          (C) transfer assets to any noninsured credit union or 
        institution in consideration of the assumption of 
        liabilities for any portion of the member accounts in 
        such insured credit union; or
          (D) convert into a noninsured credit union or 
        institution.
          (2) Conversion of insured credit unions to mutual 
        savings banks.--
                  (A) In general.--Notwithstanding paragraph 
                (1), an insured credit union may convert to a 
                mutual savings bank or savings association (if 
                the savings association is in mutual form), as 
                those terms are defined in section 3 of the 
                Federal Deposit Insurance Act, without the 
                prior approval of the Board, subject to the 
                requirements and procedures set forth in the 
                laws and regulations governing mutual savings 
                banks and savings associations.
                  (B) Conversion proposal.--A proposal for a 
                conversion described in subparagraph (A) shall 
                first be approved, and a date set for a vote 
                thereon by the members (either at a meeting to 
                be held on that date or by written ballot to be 
                filed on or before that date), by a majority of 
                the directors of the insured credit union. 
                Approval of the proposal for conversion shall 
                be by the affirmative vote of a majority of the 
                members of the insured credit union who vote on 
                the proposal.
                  (C) Notice of proposal to members.--An 
                insured credit union that proposes to convert 
                to a mutual savings bank or savings association 
                under subparagraph (A) shall submit notice to 
                each of its members who is eligible to vote on 
                the matter of its intent to convert--
                          (i) 90 days before the date of the 
                        member vote on the conversion;
                          (ii) 60 days before the date of the 
                        member vote on the conversion; and
                          (iii) 30 days before the date of the 
                        member vote on the conversion.
                  (D) Notice of proposal to board.--The Board 
                may require an insured credit union that 
                proposes to convert to a mutual savings bank or 
                savings association under subparagraph (A) to 
                submit a notice to the Board of its intent to 
                convert during the 90-day period preceding the 
                date of the completion of the conversion.
                  (E) Inapplicability of act upon conversion.--
                Upon completion of a conversion described in 
                subparagraph (A), the credit union shall no 
                longer be subject to any of the provisions of 
                this Act.
                  (F) Limit on compensation of officials.--
                          (i) In general.--No director or 
                        senior management official of an 
                        insured credit union may receive any 
                        economic benefit in connection with a 
                        conversion of the credit union as 
                        described in subparagraph (A), other 
                        than--
                                  (I) director fees; and
                                  (II) compensation and other 
                                benefits paid to directors or 
                                senior management officials of 
                                the converted institution in 
                                the ordinary course of 
                                business.
                          (ii) Senior management official.--For 
                        purposes of this subparagraph, the term 
                        ``senior management official'' means a 
                        chief executive officer, an assistant 
                        chief executive officer, a chief 
                        financial officer, and any other senior 
                        executive officer (as defined by the 
                        appropriate Federal banking agency 
                        pursuant to section 32 (f) of the 
                        Federal Deposit Insurance Act).
                  (G) Consistent rules.--
                          (i) In general.--Not later than 6 
                        months after the date of enactment of 
                        the Credit Union Membership Access Act, 
                        the Administration shall promulgate 
                        final rules applicable to charter 
                        conversions described in this paragraph 
                        that are consistent with rules 
                        promulgated by other financial 
                        regulators, including the Office of the 
                        Comptroller of the Currency. The rules 
                        required by this clause shall provide 
                        that charter conversion by an insured 
                        credit union shall be subject to 
                        regulation that is no more or less 
                        restrictive than that applicable to 
                        charter conversions by other financial 
                        institutions.
                          (ii) Oversight of member vote.--The 
                        member vote concerning charter 
                        conversion under this paragraph shall 
                        be administered by the Administration, 
                        and shall be verified by the Federal or 
                        State regulatory agency that would have 
                        jurisdiction over the institution after 
                        the conversion. If either the 
                        Administration or that regulatory 
                        agency disapproves of the methods by 
                        which the member vote was taken or 
                        procedures applicable to the member 
                        vote, the member vote shall be taken 
                        again, as directed by the 
                        Administration or the agency.
  (3) Except with the prior written approval of the Board, no 
insured credit union shall merge or consolidate with any other 
insured credit union or, either directly or indirectly, acquire 
the assets of, or assume liability to pay any member accounts 
in, any other insured credit union.
  (c) In granting or withholding approval or consent under 
subsection (b) of this section, the Board shall consider--
          (1) the history, financial condition, and management 
        policies of the credit union;
          (2) the adequacy of the credit union's reserves;
          (3) the economic advisability of the transaction;
          (4) the general character and fitness of the credit 
        union's management;
          (5) the convenience and needs of the members to be 
        served by the credit union; and
          (6) whether the credit union is a cooperative 
        association organized for the purpose of promoting 
        thrift among its members and creating a source of 
        credit for provident or productive purposes.
  (d) Prohibition.--
          (1) In general.--Except with prior written consent of 
        the Board--
                  (A) any person who has been convicted of any 
                criminal offense involving dishonesty or a 
                breach of trust, or has agreed to enter into a 
                pretrial diversion or similar program in 
                connection with a prosecution for such offense, 
                may not--
                          (i) become, or continue as, an 
                        institution-affiliated party with 
                        respect to any insured credit union; or
                          (ii) otherwise participate, directly 
                        or indirectly, in the conduct of the 
                        affairs of any insured credit union; 
                        and
                  (B) any insured credit union may not permit 
                any person referred to in subparagraph (A) to 
                engage in any conduct or continue any 
                relationship prohibited under such 
                subparagraph.
          (2) Minimum 10-year prohibition period for certain 
        offenses.--
                  (A) In general.--If the offense referred to 
                in paragraph (1)(A) in connection with any 
                person referred to in such paragraph is--
                          (i) an offense under--
                                  (I) section 215, 656, 657, 
                                1005, 1006, 1007, 1008, 1014, 
                                1032, 1344, 1517, 1956, or 1957 
                                of title 18, United States 
                                Code; or
                                  (II) section 1341 or 1343 of 
                                such title which affects any 
                                financial institution (as 
                                defined in section 20 of such 
                                title); or
                          (ii) the offense of conspiring to 
                        commit any such offense,
                the Board may not consent to any exception to 
                the application of paragraph (1) to such person 
                during the 10-year period beginning on the date 
                the conviction or the agreement of the person 
                becomes final.
                  (B) Exception by order of sentencing court.--
                          (i) In general.--On motion of the 
                        Board, the court in which the 
                        conviction or the agreement of a person 
                        referred to in subparagraph (A) has 
                        been entered may grant an exception to 
                        the application of paragraph (1) to 
                        such person if granting the exception 
                        is in the interest of justice.
                          (ii) Period for filing.--A motion may 
                        be filed under clause (i) at any time 
                        during the 10-year period described in 
                        subparagraph (A) with regard to the 
                        person on whose behalf such motion is 
                        made.
          (3) Penalty.--Whoever knowingly violates paragraph 
        (1) or (2) shall be fined not more than $1,000,000 for 
        each day such prohibition is violated or imprisoned for 
        not more than 5 years, or both.
  (e)(1) The Board shall promulgate rules establishing minimum 
standards with which each insured credit union must comply with 
respect to the installation, maintenance, and operation of 
security devices and procedures, reasonable in cost, to 
discourage robberies, burglaries, and larcenies and to assist 
in the identification and apprehension of persons who commit 
such acts.
  (2) The rules shall establish the time limits within which 
insured credit unions shall comply with the standards and shall 
require the submission of periodic reports with respect to the 
installation, maintenance, and operation of security devices 
and procedures.
  (3) An insured credit union which violates a rule promulgated 
pursuant to this subsection shall be subject to a civil penalty 
which shall not exceed $100 for each day of the violation.
  (f)(1) Every insured credit union is authorized to maintain, 
and make loans with respect to, share draft accounts in 
accordance with rules and regulations prescribed by the Board. 
Except as provided in paragraph (2), an insured credit union 
may pay dividends on share draft accounts and may permit the 
owners of such share draft accounts to make withdrawals by 
negotiable or transferable instruments or other orders for the 
purpose of making transfers to third parties.
  (2) Paragraph (1) shall apply only with respect to share 
draft accounts in which the entire beneficial interest is held 
by one or more individuals or members or by an organization 
which is operated primarily for religious, philanthropic, 
charitable, educational, or other similar purposes and which is 
not operated for profit, and with respect to deposits of public 
funds by an officer, employee, or agent of the United States, 
any State, county, municipality, or political subdivision 
thereof, the District of Columbia, the Commonwealth of Puerto 
Rico, American Samoa, Guam, any territory or possession of the 
United States, or any political subdivision thereof.
  (g)(1) If the applicable rate prescribed in this subsection 
exceeds the rate an insured credit union would be permitted to 
charge in the absence of this subsection, such credit union 
may, notwithstanding any State constitution or statute which is 
hereby preempted for the purposes of this subsection, take, 
receive, reserve, and charge on any loan, interest at a rate of 
not more than 1 per centum in excess of the discount rate on 
ninety-day commercial paper in effect at the Federal Reserve 
bank in the Federal Reserve district where such insured credit 
union is located or at the rate allowed by the laws of the 
State, territory, or district where such credit union is 
located, whichever may be greater.
  (2) If the rate prescribed in paragraph (1) exceeds the rate 
such credit union would be permitted to charge in the absence 
of this subsection, and such State fixed rate is thereby 
preempted by the rate described in paragraph (1), the taking, 
receiving, reserving, or charging a greater rate than is 
allowed by paragraph (1), when knowingly done, shall be deemed 
a forfeiture of the entire interest which the loan carries with 
it, or which has been agreed to be paid thereon. If such 
greater rate of interest has been paid, the person who paid it 
may recover, in a civil action commenced in a court of 
appropriate jurisdiction not later than two years after the 
date of such payment, an amount equal to twice the amount of 
interest paid from the credit union taking or receiving such 
interest.
  (3) A loan that is valid when made as to its maximum rate of 
interest in accordance with this subsection shall remain valid 
with respect to such rate regardless of whether the loan is 
subsequently sold, assigned, or otherwise transferred to a 
third party, and may be enforced by such third party 
notwithstanding any State law to the contrary.
  (h) Notwithstanding any other provision of law, the Board may 
authorize a merger or consolidation of an insured credit union 
which is insolvent or is in danger of insolvency with any other 
insured credit union or may authorize an insured credit union 
to purchase any of the assets of, or assume any of the 
liabilities of, any other insured credit union which is 
insolvent or in danger of insolvency if the Board is satisfied 
that--
          (1) an emergency requiring expeditious action exists 
        with respect to such other insured credit union;
          (2) other alternatives are not reasonably available; 
        and
          (3) the public interest would best be served by 
        approval of such merger, consolidation, purchase, or 
        assumption.
  (i)(1) Notwithstanding any other provision of this Act or of 
State law, the Board may authorize an institution whose 
deposits or accounts are insured by the Federal Deposit 
Insurance Corporation to purchase any of the assets of or 
assume any of the liabilities of an insured credit union which 
is insolvent or in danger of insolvency, except that prior to 
exercising this authority the Board must attempt to effect the 
merger or consolidation of an insured credit union which is 
insolvent or in danger of insolvency with another insured 
credit union, as provided in subsection (h).
  (2) For purposes of the authority contained in paragraph (1), 
insured accounts of the credit union may upon consummation of 
the purchase and assumption be converted to insured deposits or 
other comparable accounts in the acquiring institution, and the 
Board and the National Credit Union Share Insurance Fund shall 
be absolved of any liability to the credit union's members with 
respect to those accounts.
  (j) Privileges Not Affected by Disclosure to Banking Agency 
or Supervisor.--
          (1) In general.--The submission by any person of any 
        information to the Administration, any State credit 
        union supervisor, or foreign banking authority for any 
        purpose in the course of any supervisory or regulatory 
        process of such Board, supervisor, or authority shall 
        not be construed as waiving, destroying, or otherwise 
        affecting any privilege such person may claim with 
        respect to such information under Federal or State law 
        as to any person or entity other than such Board, 
        supervisor, or authority.
          (2) Rule of construction.--No provision of paragraph 
        (1) may be construed as implying or establishing that--
                  (A) any person waives any privilege 
                applicable to information that is submitted or 
                transferred under any circumstance to which 
                paragraph (1) does not apply; or
                  (B) any person would waive any privilege 
                applicable to any information by submitting the 
                information to the Administration, any State 
                credit union supervisor, or foreign banking 
                authority, but for this subsection.

           *       *       *       *       *       *       *

                              ----------                              


                     FEDERAL DEPOSIT INSURANCE ACT



           *       *       *       *       *       *       *
  Sec. 27. (a) In order to prevent discrimination against 
State-chartered insured depository institutions, including 
insured savings banks, or insured branches of foreign banks 
with respect to interest rates, if the applicable rate 
prescribed in this subsection exceeds the rate such State bank 
or insured branch of a foreign bank would be permitted to 
charge in the absence of this subsection, such State bank or 
such insured branch of a foreign bank may, notwithstanding any 
State constitution or statute which is hereby preempted for the 
purposes of this section, take, receive, reserve, and charge on 
any loan or discount made, or upon any note, bill of exchange, 
or other evidence of debt, interest at a rate of not more than 
1 per centum in excess of the discount rate on ninety-day 
commercial paper in effect at the Federal Reserve bank in the 
Federal Reserve district where such State bank or such insured 
branch of a foreign bank is located or at the rate allowed by 
the laws of the State, territory, or district where the bank is 
located, whichever may be greater.
  (b) If the rate prescribed in subsection (a) exceeds the rate 
such State bank or such insured branch of a foreign bank would 
be permitted to charge in the absence of this section, and such 
State fixed rate is thereby preempted by the rate described in 
subsection (a), the taking, receiving, reserving, or charging a 
greater rate of interest than is allowed by subsection (a), 
when knowingly done, shall be deemed a forfeiture of the entire 
interest which the note, bill, or other evidence of debt 
carries with it, or which has been agreed to be paid thereon. 
If such greater rate of interest has been paid, the person who 
paid it may recover in a civil action commenced in a court of 
appropriate jurisdiction not later than two years after the 
date of such payment, an amount equal to twice the amount of 
the interest paid from such State bank or such insured branch 
of a foreign bank taking, receiving, reserving, or charging 
such interest.
  (c) A loan that is valid when made as to its maximum rate of 
interest in accordance with this section shall remain valid 
with respect to such rate regardless of whether the loan is 
subsequently sold, assigned, or otherwise transferred to a 
third party, and may be enforced by such third party 
notwithstanding any State law to the contrary.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    H.R. 3299 attempts to codify the ``valid when made'' 
doctrine, which provides that if a loan is valid at its 
inception, it cannot subsequently become usurious if it is sold 
or transferred to another person. H.R. 3299 would overturn the 
Second Circuit Court of Appeals ruling in Madden v. Midland 
Funding, LLC, which declined to uphold the ``valid when made'' 
doctrine in the case. However, as drafted, the bill goes 
further than simply reverting back to the pre-Madden landscape 
and broadly expands the ability of non-banks to preempt state-
level usury and consumer protection laws. In other words, the 
bill makes it easier for nonbanks, such as payday lenders, to 
use rent-a-bank arrangements to ignore state interest rate caps 
and make high-rate loans. Additionally, the bill includes no 
federal usury cap to limit the sweeping preemption of all state 
interest rate caps.
    Although ``valid when made'' is a longstanding principle, 
it is a contrived modern doctrine that does not exist 
universally in state or federal statute or case law. As a 
consequence, instead of simply overturning the Madden decision, 
H.R. 3299 would codify an expanded preemption power. This is 
especially disconcerting when non-bank third parties would be 
able, under the bill, to avail themselves of the privilege to 
preempt state interest rate laws.
    The National Bank Act of 1864 and subsequent laws 
(including the Dodd Frank Wall Street Reform and Consumer 
Protection Act) generally authorize the preemption of state 
banking laws. These preemption powers allow federally chartered 
banks to only abide by the usury laws of the state listed on 
their charters. Since the bill makes it clear that the interest 
rate on any loan that is validly originated by a national bank 
that is subsequently transferred to a third party, no matter 
how quickly, is enforceable, H.R. 3299 has the potential to 
inadvertently incentivize riskier lending. As written, the bill 
advances a dangerous precedent by allowing third parties that 
buy debt from national banks to collect on interest rates that 
would otherwise violate state usury laws.
    Proponents of the legislation argue that the status quo is 
problematic because it compels national banks to comply with a 
patchwork of state laws instead of oversight by federal banking 
regulators. However, if national banks are originating loans 
that they would not otherwise make because they know they will 
not hold the loans on their books, but instead immediately 
transfer them to a third party, this argument goes away as 
banks will have little to no interest in the loan.
    This bill would allow bad actors to benefit from our 
nation's federal bank preemption and encourage unscrupulous 
lending. For these reasons, we oppose H.R. 3299.

                                   Maxine Waters.
                                   Stephen F. Lynch.
                                   Carolyn B. Maloney.
                                   Nydia Velazquez.
                                   Emanuel Cleaver.
                                   Daniel T. Kildee.
                                   Michael E. Capuano.
                                   Al Green.
                                   Vicente Gonzalez.

                                  [all]