This bill 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. It would reaffirm the legal doctrine that a loan’s interest is valid-when-made. This preemption of state usury laws would allow such loans to retain their maximum interest rate regardless of whether the loan is sold, assigned, or transferred to a third party in another state.
What is House Bill H.R. 3299?
Cost of House Bill H.R. 3299
In-Depth: Sponsoring Rep. Patrick McHenry (R-NC) introduced this bill to bring consistency to lending laws by codifying the doctrine that loans’ interest rates are valid-when-made and can be transferred across state lines without regard to state interest rate caps:
“By codifying long-standing legal precedent with the valid-when-made doctrine, we ensure that low- and middle-income Americans can access our financial markets. But this bill does more than promote financial inclusion, it also increases stability in our capital markets which have been upended by the Second Circuit’s unprecedented interpretation of our banking laws.”
Original cosponsor Rep. Gregory Meeks (D-NY) added:
“I have been encouraged by the innovative partnerships banks and fintech firms have forged to expand access to credit in under served urban and rural areas. Since the financial crisis, nearly 5,000 brick and mortar branches have shut their doors leaving many consumers without accessibility to affordable financial services. By partnering with fintech innovators, banks — including a number of those certified as Community Development Financial Institutions — have been able to achieve efficiencies in underwriting, allowing them to lower costs and reinvest in communities that stand to benefit the most. Such partnerships should be encouraged by policymakers and I am proud to work with Rep. McHenry to see that they are.”
Some House Democrats expressed opposition to this bill in its committee report:
“Proponents of this 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.”
- Sponsoring Rep. Patrick McHenry (R-NC) Press Release
- Center for Public Integrity (Opposed)
- Financial Innovation Now (In Favor)
Summary by Eric Revell(Photo Credit: ultramarine5 / iStock)
Protecting Consumers' Access to Credit Act of 2017
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.
- Not enactedThe President has not signed this bill
- The senate has not voted
Committee on Banking, Housing, and Urban Affairs
- senate Committees
- The house Passed February 14th, 2018Roll Call Vote 245 Yea / 171 Nay
Committee on Financial ServicesIntroducedJuly 19th, 2017
- house Committees