Eighteen state attorneys general, led by Oregon Attorney General Dan Rayfield, have urged Congress to reject H.R. 7866, the American Lending Fairness Act of 2026. In a November 9, 2026 letter to House Speaker Mike Johnson and House Minority Leader Hakeem Jeffries, the attorneys general argue that the legislation would improperly restrict states’ ability to opt out of the interest-rate preemption provisions of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA).

The letter makes the same arguments that certain of those states have been making in courts in support of their expansive interpretation of DIDMCA’s opt-out provision. Those arguments include the historical authority of states to regulate usury, the purported legislative compromise reflected in DIDMCA, and the perceived threat posed by bank-fintech partnerships that allow nonbank lenders to make high-interest loans to consumers residing in states with interest-rate caps.

The letter also provides a useful opportunity to examine why these states’ interpretation of DIDMCA is disputed and why Congress is being asked to clarify the meaning of a statute that is already the subject of significant litigation.

The AGs’ Argument: DIDMCA Preserved Broad State Authority to Opt Out and Regulate Interest Rates Charged by Out-of-State State Banks

The attorneys general begin with the proposition that banking and consumer protection fall within the historic police powers of state governments. They cite Lewis v. BT Investment Managers, Inc., 447 U.S. 27 (2009), for the importance of sound financial institutions and honest financial practices to state economies, and Massie v. Rubin, 270 F.2d 60 (10th Cir. 1959), for the consumer-protection purposes of state usury laws.

The letter asserts that 45 states and the District of Columbia have usury laws limiting interest rates on small- to mid-size consumer installment loans. According to the AGs, Congress recognized the importance of these state laws when it enacted DIDMCA in 1980.

DIDMCA generally extended to state-chartered, federally insured banks the ability to charge interest at rates permitted by the laws of their home states when lending across state lines. This interest-rate exportation authority was intended to create parity between state-chartered banks and national banks under Section 85 of the National Bank Act.

At the same time, Congress included Section 525, which permitted states to opt out of the interest-rate provisions set forth in Section 521 of DIDMCA. The AGs characterize this provision as a deliberate compromise: state-chartered banks would generally enjoy interest-rate exportation authority, but states could elect to preserve their usury laws by opting out pursuant to Section 525.

In support of their interpretation, the AGs quote a 1979 Senate Banking Committee statement that DIDMCA gave state legislatures the ability to curtail the legislation’s operation with respect to their own particular states and circumstances.

The AGs contend that H.R. 7866 would upset this compromise by preventing an opt-out state from applying its interest-rate restrictions to loans made to its residents by state-chartered banks located elsewhere.

The “Rent-a-Bank” Concern

A substantial portion of the letter focuses on the growth of bank-fintech lending arrangements.

The AGs argue that nonbank lenders increasingly partner with state-chartered banks located in states without restrictive interest-rate ceilings to make loans to consumers in states that impose such ceilings. By structuring the transaction as a bank loan, the nonbank lender seeks to benefit from the bank’s ability to export its home-state interest rate.

The letter characterizes these arrangements as a means of evading state usury laws and argues that the practice has become more prevalent in recent years. The letter points to the OCC’s efforts more than two decades ago to address these arrangements involving national banks. It cites OCC Bulletin 2001-47 and Advisory Letter 2000-10, which discussed risks associated with third-party relationships and the use of national bank charters by nonbank lenders.

The letter’s argument is that, although the OCC previously addressed similar practices involving national banks, state-chartered banks located in states without rate ceilings remain a vehicle through which nonbank lenders can make loans that exceed the usury limits of borrower states.

Recent Opt-Out Activity

The letter acknowledges that states have historically exercised the DIDMCA opt-out sparingly. It identifies Iowa and Puerto Rico as having maintained longstanding opt-outs and notes that Iowa has recently used its opt-out authority to address fintech lending.

The AGs also point to Colorado and Oregon, both of which enacted legislation opting out of DIDMCA preemption in recent years. They note that other states and the District of Columbia have considered similar legislation.

In the AGs’ view, these developments demonstrate why Congress should not enact H.R. 7866. They argue that states must retain the ability to evaluate the effects of bank-fintech lending arrangements on their residents and respond through legislation.

H.R. 7866

The letter describes H.R. 7866 as stripping states of their current ability to opt out of DIDMCA’s interest-rate preemption provisions and thereby supposedly gain the ability to regulate the interest rates of out-of-state state banks. However, this argument is based on a faulty premise. Section 525 of DIDMCA does not allow an opt-out state to regulate interest rates of out-of-state state banks. Instead, as recognized by the District Court in the Colorado opt-out litigation, an opt-out only applies to the exportation powers of the opt-out state’s own state banks.

H.R. 7866 would not eliminate all state opt-out authority. Rather, it would merely clarify that Section 525 only allows a state to opt-out of interest-rate exportation with respect to loans made by institutions chartered by that state. This was the intent of Congress when it enacted Section 525 in 1980.

The legislation would also repeal Section 525 and apply its newly clarified language to previously enacted opt-outs. Thus, states such as Colorado and Oregon would not be able to use their opt-outs to subject loans made by out-of-state state-chartered banks to the opt-out states’ own interest-rate limitations. These states would retain the ability to opt out only with respect to loans made by their own state-chartered institutions.

This distinction is central to the disagreement. The legislation’s proponents maintain that a state should be able to determine whether its own banks may export interest rates, but should not be able to use its opt-out to regulate the interest rates charged by banks chartered by other states. They view that approach as consistent with the federal interest-rate exportation framework and the goal of creating state bank parity with national banks sought by Congress in enacting DIDMCA in 1980.

Questions Raised by the AGs’ Arguments

Several aspects of the AGs’ letter reasoning warrant closer examination.

First, the existence of state police powers does not itself resolve the scope of federal preemption.

There is no serious dispute that states historically have regulated lending and established usury limits. But the question presented by DIDMCA is not whether states possess that general authority. It is whether Congress displaced the application of state interest-rate limitations to particular interstate loans and, if so, the extent to which Congress permitted states to opt out of that displacement.

The fact that consumer protection is an important state interest does not answer the statutory interpretation question. Congress has the authority to establish a federal framework governing interest-rate exportation, including the extent to which state laws are preempted. Indeed, in the landmark Marquette decision, the Supreme Court unanimously held that Section 85 of the National Bank Act allowed national banks to export their home state interest rates and preempted lower interest rate ceilings in the borrower’s state. The Court stressed that “state usury laws must, of course, give way to the federal statute.” 439 U.S. at 318 p.31.

Second, the legislative history cited by the AGs does not support their interpretation.

The AGs rely heavily on the Senate Banking Committee’s statement that states could curtail DIDMCA’s operation with respect to their own particular states and circumstances.

But that statement does not expressly address the precise issue now in dispute: whether a state may use its opt-out to impose its interest-rate limitations on loans made by banks chartered in other states. The phrase “concerning a state’s own particular circumstances” should reasonably be understood as referring to the ability of a state to determine the interest-rate exportation authority of institutions chartered within that same state.

The statutory language and structure therefore remain critical. General statements about preserving state authority do not establish that Congress intended to permit one state to restrict the federal interest-rate exportation authority of banks chartered by another state.

Contrary to the states’ interpretation of DIDMCA’s legislative history, it is clear that Congress, in enacting Sections 521 and 525 of DIDMCA, was focused exclusively on dealing with a crisis which had developed with respect to intrastate lending in which state banks in certain states were unable to make any loans because of the fact that applicable usury law limitations to which they were subject were well below those banks’ cost of funds while national banks in the same state could lend funds under Section 85 of the National Bank Act at 1% over the Federal Reserve discount rate, which was then higher than the 10% interest rate ceiling in Arkansas and several other states. Indeed, the legislative history demonstrates that Senators Bumpers and Pryor of Arkansas pushed for enactment of this legislation because the Arkansas Constitution contained a 10% usury ceiling which effectively prevented state banks in Arkansas from making loans to Arkansas residents during the period of high inflation and interest rates in 1979-1980.

Third, the “rent-a-bank” issue should not be conflated with the statutory interpretation question.

The AGs focus on the potential consumer consequences of high-interest rate lending and bank-fintech partnerships. But whether a particular partnership constitutes a legitimate bank lending arrangement or an impermissible attempt by a nonbank to evade state law is a separate question from whether DIDMCA permits an opt-out state to impose its interest-rate limitations on an out-of-state state-chartered bank.

Bank-fintech arrangements raise questions concerning the bank’s role as lender, the allocation of lending functions, the substance of the relationship, and compliance with applicable federal and state law. Those questions should be evaluated under the relevant statutory and regulatory framework and the facts of the particular arrangement.

The existence of some problematic lending arrangements does not establish that Congress intended DIDMCA’s opt-out provision to have the broad reach advocated by the AGs.

The Pending Litigation and the Congressional Debate

The November 9 letter also comes at an important time in the litigation over the scope of Section 525.

In Colorado, trade associations representing financial institutions have challenged the state’s expansive interpretation of its DIDMCA opt-out, and prevailed in the District Court in Colorado, which enjoined enforcement of Colorado interest rate caps against out-of-state state banks. The Tenth Circuit agreed to rehear the case en banc, and oral argument took place on August 18, 2026. The central issue is whether Colorado may apply its interest-rate limitations to loans made to Colorado residents by banks chartered in other states. The Federal District Court answered “no.” Ballard Spahr represents the American Bankers Association, Consumer Bankers Association, Bank Policy Institute, America’s Credit Unions, and 52 State Bankers Associations as amici supporting plaintiffs in that case. Plaintiffs are also supported by the FDIC and OCC.

Similar litigation is pending in Oregon, where the scope of the state’s opt-out legislation is also being challenged. Ballard Spahr represents the trade associations who have sued the State of Oregon in that case and moved for a preliminary injunction to prevent enforcement of Oregon’s interest rate caps against out-of-state state banks. The motion remains pending.

The AGs’ letter is particularly significant because it makes clear that the states are pursuing their position on two fronts: defending their interpretation of DIDMCA in court while urging Congress not to enact legislation that would adopt the competing interpretation.

H.R. 7866 was approved by the House Financial Services Committee on September 16, 2026, by a vote of 31-18, as amended. The bill would provide a federal legislative resolution of the dispute, although its ultimate fate remains to be determined. It is awaiting action by the full House of Representatives and then the Senate.