The bill, H.R. 3139, otherwise known as the Consumer Credit Access, Innovation and Modernization Act, would give non-bank financial services providers -- including payday lenders, installment lenders, car-title lenders, prepaid-card issuers, check cashers and others -- access to a federal charter issued by the Office of the Comptroller of the Currency.
The state officials say the bill would totally preempt state licensing laws for non-bank financial services providers, and require state consumer protection laws to be evaluated under the preemption standard set forth by the U.S. Supreme Court in Barnett v. Nelson.
“The legislation is nothing more than a shameless attempt by the payday lending industry to do an end run around states’ decades’ long battle to protect low-income families from becoming trapped in a downward spiral of debt,” said Illinois Attorney General Lisa Madigan, one of those signing the letter.
The letter was sent to House Speaker John Boehner (R-OH), House Majority Leader Nancy Pelosi (D-CA), Senate Majority Leader Harry Reid (D-NV) and Senate Minority Leader Mitch McConnell (R-KY).
In it the attorneys general argue that states, in recent years, have passed laws cracking down on abuses by short-term lenders while preserving consumers' access to credit.
"Many of these states have chosen to strike a regulatory balance that preserves access to alternative forms of credit while protecting consumers from repeated debt cycles and other pitfalls associated with such products," the letter states. "H.R. 6139 would turn back existing consumer protections and curtail all future efforts by the states to enhance their consumer safeguards."
Minimal consumer protections
In place of state safeguards, the officials say the bill would establish only minimal consumer protections. Although the bill would prohibit lenders from extending credit to consumers unless there is a reasonable basis for believing the consumer can repay the loan, they say it establishes no standards for determining a consumer’s ability to repay.
“It’s critical for states to both preserve consumers’ access to alternative forms of credit and retain the ability to take quick action against short-term lenders that prey on those already in financial distress,” said Indiana Attorney General Greg Zoeller. “This joint effort among attorneys general underscores the importance of killing this federal legislation that would provide no significant protections for consumers and have unintended consequences.”
The bill has bi-partisan backing in Congress and the opposition is also bi-partisan. The 41 attorneys general declaring their opposition include both Republicans and Democrats.