November 30, 2023
Nyasha Smith, Secretary
Council of the District of Columbia
1350 Pennsylvania Avenue, NW
Washington, DC 20004
Dear Secretary Smith,
Today, I am introducing the Protecting Affordable Loans Amendment Act of 2023 (PALs Act) to
prevent out-of-state lenders from partnering with state-chartered banks outside of the District to
evade the local usury cap of 24%. The Office of the Attorney General (OAG) has recently
investigated several predatory lenders, including EasyPay, which is alleged to have “charged
customers exorbitant interest rates averaging 163% APR - roughly 7 times higher than DC’s 24%
limit - trapping consumers in cycles of debt that threatened to ruin their credit scores and financial
security.”
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The PALs Act is the result of collaboration between OAG, the Department of
Insurance, Securities, and Banking (DISB), and the Committee on Business and Economic
Development. This legislation strengthens the tools available for both DISB, the District’s banking
regulator, and OAG, the law enforcement agency charged with protecting consumers.
This type of abusive evasion of the District’s usury cap is possible under the Depository Institution
Deregulation and Monetary Control Act (DIDMCA), enacted by Congress in 1980, which
preempts state usury laws by arguably allowing FDIC-insured, state-chartered banks to contract
for the interest rate permitted by the state in which the bank is located and export that interest rate
into other states. Accordingly, a bank chartered in a state without an interest rate cap can therefore
purportedly lend at usurious rates in many states and in the District. DIDMCA was passed to level
the playing field for state-chartered banks after the Supreme Court ruled in Marquette Nat. Bank
v. First of Omaha Svc. Corp., 439 U.S. 299 (1978), th at nationally-chartered banks are exempt
from state usury laws.
DIDMCA, however, allows states and the District to opt- out from these federal provisions
regarding interest rates of state- chartered federally insured banks. If the District opts out of this
part of DIDMCA, the District can impose its usury caps to prohibit these state-chartered banks
(e.g., a Delaware or South Dakota bank) from importing that state’s usury regulations (neither state
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“AG Sch walb Secures Comprehensive Financial Relief for Consumers Deceived by Predatory Lend er,
https://oag.dc.gov/release/ag-schwalb-secures-comprehensive- financial-relief (July 12, 2023). has a cap on interest rates) when offering credit terms to District residents. Several states have
exercised this opt-out (some like Iowa in the early years after DIDMCA was passed, and others
more recently, including Colorado in 2023) to strengthen state-level consumer protection and
enforcement against new technology- enabled platforms seeking to “rent” out-of-state banks and
import higher rate lending products into jurisdictions with lower usury caps.
The proposed legislation would exercise the District’s right to opt-out of the federal requirement
that the District apply the interest rates of state- chartered federally insured banks.
•This will close the loophole that allows foreign (as in non- District) state-chartered
banks to import usurious interest rates and largely end the explosion of
nontraditional, fintech- enabled efforts targeting District consumers with these types
of predatory loans.
•The proposed legislation also defines several key terms, including “lender ,” in the
Code to clarify what persons and entities are subject to lending regulations.
Currently, the definition of “lender” (or “true lender,” “de facto lender,” “lender in
fact,” “actual lender,” “nominal lender,” or “real party in interest”) comes from case
law and must often be re litigated case-by-case. This legislation would codify the
factors courts have used with substance-over-form doctrines to prevent entities
from structuring transactions to evade enforcement of consumer protection laws.
Please contact my Committee Director, Justin Kim, at jkim@dccouncil.gov if you have any
questions.
Sincerely,
Kenyan R. McDuffie 1
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Councilmember Kenyan R. McDuffie 4
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A BILL 10
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IN THE COUNCIL OF THE DISTRICT OF COLUMBIA 13
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To amend Chapter 33 of Subtitle II of Title 28 of the District of Columbia Official code 16
to exercise the District’s right under the federal Depository Institutions 17
Deregulation and Monetary Control Act to opt -out of the federal requirement that 18
the District apply the interest rates of state- chartered federally insured banks , and 19
to codify definitions of “lender” and “loan” to encompass loan transactions 20
structured to evade District requirements. 21
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BE IT ENACTED BY THE COUNCIL OF THE DISTRICT OF COLUMBIA, 23
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That this act may be cited as the “Protecting Affordable Loans Amendment Act of 2023”. 25
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Sec. 2. Chapter 33 of Subtitle II of Title 28 of the District of Columbia Official 27
Code is amended as follows: 28
(a) The table of contents is amended by adding new section designations to read 29
as follows: 30
Ҥ 28-3311a. Lender defined. 31
Ҥ 28-3311b. Loan defined. 32
Ҥ 28- 3311c. Lendee defined. 33
“§ 28-3311d. Territorial application.”. 34
(b) Section 28- 3301 is amended by adding a new subsection (j) to read as follows: 35
“(j) In accordance with section 525 of the Depository Institutions Deregulation 36 2
and Monetary Control Act of 1980, approved March 31, 1980 (Pub. L. 96- 221; 94 Stat. 37
161) (“DIDMCA”), it is hereby expressly provided that the District does not w ant the 38
amendments made by section 521 of DIDMCA (12 U.S.C. § 1831d) to apply with respect 39
to loans made in the District.” . 40
(c) New sections 28-3311a, 28-3311b, and 28- 3311c are added to read as follows: 41
Ҥ 28-3311a. Lender defined. 42
“For the purposes of this chapter, the word “lender” means a person , including any 43
affiliate or subsidiary of another legal entity, that offers or makes a loan, arranges or 44
facilitates a loan for a third party, or acts as an agent for a third party in making or 45
servicing a loan, including any person engaged in a transaction that is in substance a 46
disguised loan or a subterfuge for the purpose of avoiding this chapter, regardless of 47
whether or not the entity or person is subject to licensing, and that: 48
“(a) Holds, acquires, or maintains, directly or indirectly, the whole , predominant, 49
or partial economic interest , risk or reward in the loan; 50
“(b) Markets, brokers, arranges, facilitates, or services the loan and holds or holds 51
the right, requirement, or first right of refusal to acquire, the loan or a receivable or 52
interest in the loan; or 53
“(c) The totality of the circumstances indicate that the person is the lender and the 54
transaction is structured to evade the requirements of this chapter . Circumstances that 55
weigh in favor of a person being considered a lender include, but are not limited to , when 56
the person: 57
“(1) Indemnifies, insures, or protects an exempt entity for any costs or 58
risks related to the loan; 59 3
“(2) Predominantly designs, controls, or operates the loan program; 60
“(3) Purports to act as an agent, service provider, or in another capacity for 61
an exempt entity while acting directly as a lender in other states, or 62
“(4) H olds the trademark or intellectual property rights in the brand, 63
underwriting system, or other core aspects of the loan program.” 64
Ҥ 28-3311b. L oan defined. 65
“For the purposes of this chapter, the word “ loan” means m oney or credit 66
provided to a consumer in exchange for the consumer’s agreement to a certain set of 67
terms, including, but not limited to, any finance charges, interest, or other payments, 68
closed-end and open- end credit, retail installment sales contracts, motor vehicle retail 69
installment sales contracts, and any deferred deposit transactions.” 70
Ҥ 28- 3311c. Lendee defined. 71
“For the purposes of this chapter, the word “lendee” means any person who 72
received a loan.” 73
Ҥ 28-3311d. Territorial application. 74
“A loan shall be considered as having been made in the District if the lendee is a 75
resident of the District at the time the lender receives either a signed writing evidencing 76
the transaction or modification, or a written or oral offer of the buyer, lessee, or debtor to 77
enter into or modify the transaction.” . 78
Sec. 3. Fiscal impact statement . 79
The Council adopts the fiscal impact statement in the committee report as the 80
fiscal impact statement required by section 4a of the General Legislative Procedures Act 81
of 1975, approved October 16, 2006 (120 Stat. 2038; D.C. Official Code § 1- 301.47a). 82 4
Sec. 4. Effective Date. 83
This act shall take effect following approval by the Mayor (or in the event of veto 84
by the Mayor, action by the Council to override the veto), a 30-day period of 85
congressional review as provided in section 602(c)(1) of the District of Columbia Home 86
Rule Act, approved December 24, 1973 (87 Stat. 813; D.C. Official Code § 1-87
206.02(c)(1)), and publication in the District of Columbia Register. 88