A group of Democratic Senators led by Oregon Senator Jeff Merkley is expected to introduce the “Stopping Abuse and Fraud in Electronic Lending Act of 2016” or “SAFE Lending Act of 2016.”
The bill represents the latest version of bills with similar titles introduced by Senator Merkley and other Democratic Senators in previous years. In addition to limits on remotely authorized checks, the bill would amend the Truth in Lending Act to establish a requirement for lenders making “small-dollar consumer credit transactions” to register with the CFPB. It should be noted however, that under Section 1022(c)(7) of the Dodd-Frank Act, the CFPB already has authority to establish registration requirements for “covered persons” other than insured depository institutions, insured credit unions, and related persons.
The bill defines “small-dollar consumer credit transactions” to mean a loan of $5,000 or less (subject to annual CFPB adjustment) that is one of the following: (1) if closed-end, payable in 1 or more installments of less than 12 months (or such longer period as the CFPB determines by rule), (2) if open-end, made under a plan in which each advance is repayable within a defined time or in connection with a defined event, or both, or (3) any other loan as the CFPB determines by rule. While perhaps not intended, the open-end plans covered by the definition could be read to include conventional credit cards.
The bill would require any small-dollar consumer credit transaction that is made over the Internet, telephone, facsimile, mail, or email “to comply with the laws of the State in which the consumer resides with respect to annual percentage rates, interest, fees, charges, and such other or similar matters as the Bureau may, by rule, determine.” It would also require any small-dollar consumer credit transaction “conducted by a national bank” to comply with the laws of the state in which the consumer resides. This provision would appear to be an attempt to override Section 85 of the National Bank Act, which allows a national bank to make loans to borrowers at the rate allowed by the laws of the state where the bank is located. This rate authority applies regardless of any conflicting law of the state where the borrower resides or the credit transaction is consummated.
The bill would also prohibit lead generation in small-dollar consumer credit transactions by an entity that is not “directly providing the small-dollar consumer credit to the consumer.” In addition, the bill includes a ban on overdraft fees on general use prepaid cards.