On February 12, ten Rhode Island senators introduced S 2275, a bill proposing to opt Rhode Island out of §§ 521-523 of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). On February 13, HF 3680 was introduced in Minnesota, proposing to opt-out of DIDMCA expressly as to non-credit card forms of credit. These legislative efforts to opt-out of DIDMCA, coupled with the influx in recent “true lender” legislation, seem to show a coordinated effort to restrict bank-model lending.

Sections 521-523 are codified as § 27 of the Federal Deposit Insurance Act, § 4(g) of the Home Owners’ Loan Act and § 205 of the Federal Credit Union Act. These provisions normally empower insured state banks, insured savings associations, and state credit unions to charge the interest allowed by the state where they are located, regardless of the borrower’s location and regardless of conflicting state law (i.e., “export” their home state’s interest-rate authority). But another section of DIDMCA (§ 525), permits states to legislatively opt out of §§ 521-523 for “loans made in such state.” If the bills pass, Rhode Island and Minnesota will join Colorado (effective July 1, 2024) discussed here, Washington D.C. (if pending legislation is enacted) discussed here, Iowa, and Puerto Rico as the only jurisdictions currently opting out.

The bills are intended to prevent out-of-state financial institutions from charging rates higher than the rates otherwise permitted by Rhode Island and Minnesota. However, it is unclear whether the legislation will achieve this goal. This is because federal law controls where a loan is “made” for opt-out purposes and interpretations of the federal banking agencies suggest that where a loan is “made” is often not the borrower’s location. If a loan is not “made” in the opt-out state, e.g., Rhode Island or Minnesota, the opt-out would not apply, and therefore, the state’s rate restrictions would not apply to that loan. (Despite federal law controlling where a loan is “made,” the Minnesota bill purports to provide that a loan is “made” in Minnesota and subject to Minnesota law if the borrower is a Minnesota resident who completes the transaction, including electronically, while physically located in Minnesota.)

We will closely follow Rhode Island S 2275, which, if passed, would take effect on October 1, 2024, and Minnesota HF 3680, which, if passed, would take effect on August 1, 2024.

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Photo of Jason Cover Jason Cover

Jason’s in-depth experience advising on consumer lending matters both as in-house counsel and outside advisor provides extensive industry knowledge for his financial services clients.

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As a former senior enforcement attorney with the CFPB, James provides the industry knowledge and expertise that fintechs and financial institutions require when launching new products or facing regulatory scrutiny.

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Caleb is counsel in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small…

Caleb is counsel in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small businesses in the credit and alternative finance products industry.

Photo of Jeremy Rosenblum Jeremy Rosenblum

Jeremy focuses his practice on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products…

Jeremy focuses his practice on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products designed to serve the needs of unbanked and under-banked consumers), bank overdraft practices and disclosures, geographic expansion initiatives, and compliance with federal and state consumer protection laws, including statutes prohibiting unfair, deceptive and abusive acts and practices (UDAAP); usury laws; the Truth in Lending Act (TILA); the Electronic Funds Transfer Act; E-SIGN; the Equal Credit Opportunity Act; and the Fair Credit Reporting Act (FCRA).

Photo of Taylor Gess Taylor Gess

Taylor focuses her practice on providing regulatory advice on matters related to federal and state consumer protection, consumer finance, and payments laws, including those that apply to payment cards, lines of credit, installment loans, electronic payments, online banking, buy-now-pay-later transactions, retail installment contracts…

Taylor focuses her practice on providing regulatory advice on matters related to federal and state consumer protection, consumer finance, and payments laws, including those that apply to payment cards, lines of credit, installment loans, electronic payments, online banking, buy-now-pay-later transactions, retail installment contracts, rental-purchase transactions, and small business loans.

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Melanie is an associate in the firm’s Consumer Financial Services Practice Group. Prior to joining the firm, she clerked for Chief Justice Lorie S. Gildea on the Minnesota Supreme Court and was a civil division law clerk in the Minneapolis City Attorney’s Office.

Melanie is an associate in the firm’s Consumer Financial Services Practice Group. Prior to joining the firm, she clerked for Chief Justice Lorie S. Gildea on the Minnesota Supreme Court and was a civil division law clerk in the Minneapolis City Attorney’s Office. She gained industry experience working at a credit union and a community bank before attending law school.