California Attorney General Opposes Federal Bill That Would Limit State Usury Laws

Under Section 521 of DIDMCA, state-chartered banks can charge the interest rate allowed by the state where the bank is located, regardless of where a borrower lives, thereby preempting state interest-rate caps by charging more than the state where the borrower lives would typically allow (Source ID: 1). This provision has allowed nonbank lenders to exploit interest-rate preemption by entering into sham partnerships with state banks to evade otherwise-applicable interest rate caps (Source ID: 1). [1]

In 2023, the Colorado Attorney General found that one “rent-a-bank” operator was making thousands of loans in the state with annual interest rates in excess of 100%, resulting in significant default rates that harmed consumers’ credit scores and access to more affordable future credit (Source ID: 1). The Section 525 opt-out is an important tool for states to protect consumers, and H.R. 7866 would rob state legislatures of this important right, facilitate the actions of predatory lenders, and limit states’ ability to protect their citizens from high-cost lending (Source ID: 1). [1]

California Attorney General Rob Bonta joined a coalition of 18 attorneys general in sending a letter to Congress opposing a U.S. House of Representatives bill, H.R. 7866, which would eliminate states' ability to opt out of the interest-rate preemption provisions of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) (Source ID: 1). The letter emphasizes that states play a crucial role in consumer financial protection and that California has laws protecting consumers from predatory lending, including when it comes to how much interest banks can charge consumers (Source ID: 1). [1]

Under Section 521 of DIDMCA, state-chartered banks can charge the interest rate allowed by the state where the bank is located, regardless of where a borrower lives, thereby preempting state interest-rate caps by charging more than the state where the borrower lives would typically allow (Source ID: 1). The attorneys general argue that in passing DIDMCA, Congress acknowledged the importance of states’ role in regulating interest rates by creating the Section 525 opt-out (Source ID: 1). [1]

This opt-out right has only become more important as nonbank lenders have increasingly exploited interest-rate preemption by entering into sham partnerships with state banks in order to evade otherwise-applicable interest rate caps (Source ID: 1). For example, in 2023 the Colorado Attorney General found that one 'rent-a-bank' operator was making thousands of loans in the state with annual interest rates in excess of 100%, resulting in significant default rates that harmed consumers’ credit scores and access to more affordable future credit (Source ID: 1). [1]

California Attorney General Rob Bonta joined a coalition of 18 attorneys general in sending a letter to Congress opposing a U.S. House of Representatives bill, H.R. 7866, which would eliminate states' ability to opt out of the interest-rate preemption provisions of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) (Source ID: 1). The letter highlights the importance of states' role in consumer financial protection, emphasizing that California has laws designed to shield consumers from predatory lending practices, including regulations on the interest rates banks can charge (Source ID: 1). [1]

Under Section 521 of DIDMCA, state-chartered banks can charge the interest rate allowed by the state where the bank is located, regardless of where a borrower lives, thereby preempting state interest-rate caps by charging more than the state where the borrower lives would typically allow (Source ID: 1). This provision has raised concerns as nonbank lenders have increasingly exploited interest-rate preemption by forming sham partnerships with state banks to evade applicable interest rate caps (Source ID: 1). [1]

In 2023, the Colorado Attorney General found that one “rent-a-bank” operator was making thousands of loans in the state with annual interest rates in excess of 100%, resulting in significant default rates that harmed consumers’ credit scores and access to more affordable future credit (Source ID: 1). The Section 525 opt-out right, which allows states to enforce their usury laws, has become increasingly critical in addressing such predatory lending practices (Source ID: 1). [1]

Sources

California Attorney General Xavier Becerra - Press Releases

Prepared with AI assistance from the cited sources.