This bill amends the Revised Statutes, the Home Owners’ Loan Act, the Federal Credit Union Act, and the Federal Deposit Insurance Act to state that bank loans that are valid when made as to their maximum rate of interest in accordance with federal law shall remain valid with respect to that rate regardless of whether a bank has subsequently sold or assigned the loan to a third party.
Why Jason Lewis’ vote is against our values
“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.” (Source: Minority Views, House Report 115-538, Committee on Financial Services)
On behalf of The Leadership Conference on Civil and Human Rights, I urge you to oppose H.R. 3299, the “Protecting Consumers’ Access to Credit Act of 2017.” H.R. 3299 would allow payday lenders and other non-bank institutions to use “rent-a-bank” arrangements to evade state usury laws and make loans with interest rates in the triple digits, enabling the kind of “access to credit” that will drive low-income consumers into even deeper debt and do them more harm than good. Non-bank lenders have attempted “rent-a-bank” arrangements to take advantage of the federal charters of banks, which allow federal preemption of state interest rate caps and other state consumer protection laws to charge interest rates that are far higher than legally permissible for nonbanks in some states. Under these arrangements, banks effectively “rent” their federal charter powers to non-bank lenders, in exchange for a fee associated with each loan.” (Source: Vanita Gupta, President & CEO of The Leadership Center)
The undersigned 202 national and state organizations write in strong opposition to H.R. 3299 (McHenry) and S. 1642 (Warner), the Protecting Consumers’ Access to Credit Act of 2017. The primary impact of this bill will be enabling nonbank lenders to make high-cost loans that exceed state interest rate limits by using a bank to originate the loan. The bill poses a serious risk of enabling predatory lending and unsafe lending practices. Unaffordable loans have devastating consequences for borrowers—trapping them in a cycle of unaffordable payments and leading to harms such as greater delinquency on other bills.” (Source: National Consumer Law Center, coalition of 202 national and state organizations)
“Critics say this arrangement has all the hallmarks of a rent-a-bank relationship that effectively evades state laws limiting payday loans, but the existing rules regarding such rent-a-bank partnerships are murky at best and only intermittently enforced. Now Congress, in trying to help expand credit for poor people, may be inadvertently codifying the rent-a-bank partnerships that allow payday and high-interest lenders legally avoid state usury laws, according to those critics.” (Source: The Center for Public Integrity)