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Bill in House H.R. 3299 may restrict states’ abilities to enforce interest rate caps

By Tami Stevenson

Although the bill’s name would lead one to the believe it will help consumers, when in reality opponents say it will help lenders - and in a big way - by getting around the state interest cap set to protect consumers in their respective states. The bills, H.R. 3299 and S. 1642, were introduced last July, by Republican Senator Patrick McHenry and Democratic Senator Mark Warner. They are both cleverly named “Protecting Consumers’ Access to Credit Act.” Passing various committees, H. R. 3299 has been added to the House’s schedule for this week.

There has been much opposition to these bills. A joint letter written last September by 152 organizations was sent to every member of Congress urging them to reject these bills.

The groups included organizations like Florida Alliance for Consumer Protection, Florida Consumer Action Network, Florida PIRG, Consumer Federation of America, Center for Responsible Lending, National Consumer Law Center and Americans for Financial Reform and many more.

The letter states that
“...This bill is a massive attack on state consumer protection laws. In a letter by 20 State Attorneys General opposing provisions in another bill that would have overturned the Madden (Madden v. Midland) decision, the state law enforcement officers warned that the bill ‘would restrict states’ abilities to enforce interest rate caps. It is essential to preserve the ability of individual states to enforce their existing usury caps and oppose any measures to enact a federal law that would preempt state usury caps.’ In fact, the Colorado Attorney General is in the midst of challenging online lenders’ use of a rent-a-bank scheme to make loans in violation of the state’s usury limits. This bill aims to thwart actions like these that seek to enforce state laws.

The potential costs and damage to consumers are significant. In about 34 states, a $2,000 loan, two-year installment loan at an APR exceeding 36% would be illegal. This bill risks making high-cost loans permissible across the country. The bill also could potentially expand short-term payday lending to the 15 states plus the District of Colombia whose state interest rate limits currently save borrowers over $2.2 billion annually in payday loan fees…”

Currently, the cap for Florida is 18 percent.

This below is directly from H. R. 3299 and is added at the end of a number of paragraphs: ‘‘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.’’

UPDATE: 6 p.m. 2/14/18

H. R. 3299 was debated in the House today for well over an hour - hearing from both proponents and opponents alike.

One proponent, Tom Emmer R-Minnesota argued, "...A 2015 court decision that we have heard other speakers talk about today, Madden vs. Midland, is making it difficult for online lenders to offer businesses the funds they need to grow and succeed. In Madden, the court held that while the national bank act allows a federally chartered bank to charge interest under the laws of its home state on loans it makes nationwide, nonbanks that aguire these loans may not be able to maintain the same rate of interest since none banks are subject to limits of the borrower state. At that time when lenders are eager to help consumers and businesses gain access to capital, Congress needs to step in to check this misguided ruling. When a federally chartered bank originates the interest on a loan, that interest rate should remain consistent. Representative McHenry’s legislation provides that fix by codifying the legal doctrine of valid when made. Further, it helps community banks and credit unions access secondary markets they need to generate liquidity while also enabling new and emerging financial technology innovators to find easier ways for consumers and businesses to access credit and capital."

Maxine Waters D-California argued against the bill stating, "...The type of credit that this bill helps consumers access is the kind that makes it easier for vulnerable consumers to sink into insurmountable debt, like payday and other high-cost loans. H.R. 3299 Expands the ability of nonbanks to preempt state level consumer protections by stating that the interest rate on any loan originated by a national bank that is subsequently transferred to a third party, no matter how quickly after it is originated, is enforceable. Which incentivizes riskier and predatory lending. H.R. 3299 advances a dangerous precedent by allowing third parties that purchase loans from national banks to collect on interest rates that would otherwise be illegal because they exceed state caps."

The bill was voted on and passed tonight 2/14/18

passed by end of day
Vote Details: Yea - 245
Republican - 229
Democratic - 16

Vote Details: Nay - 171
Democratic - 170
Republican - 1