Bill Hulse
Senior Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
Published
May 14, 2024
What Happened: Colorado recently enacted legislation that could make it even more difficult for consumers to access emergency funds by opting out of The Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980. Other states are now considering similar actions -- including in the District of Columbia, Minnesota, Nevada, and Rhode Island.
Read Me In: DIDMCA allows federally insured state banks, state credit unions, and state savings institutions to export the interest rate permitted under their home state laws to consumers in other states. This law puts state-chartered banks on equal footing with national banks and federally chartered credit unions. However, Section 525 of DIDMCA allows states to “opt-out” of this federal interest rate preemption.
Why it Matters: Opting out of DIDMCA would prohibit out-of-state banks from exporting their interest rates to consumers in other states. This would impact all types of consumer credit: auto loans, mortgages, credit cards, personal loans, etc.
The evidence is clear that Americans need access to responsible and affordable credit options. According to the Federal Reserve Board, “If faced with an unexpected expense of $400 … 27 percent [of adults] would borrow or sell something to pay for the expense, and 12 percent would not be able to cover the expense at all.”
Fewer Loan Options: Certain loans would no longer be permissible in these states. Imposing caps on the annual percentage rate (APR), or instituting other price controls, does not make credit more affordable, it makes it less accessible.
The Chamber released a report in 2021, “The Economic Benefits of Risk-Based Pricing for Historically Underserved Consumers in the United States,” which explains that credit is more accessible and affordable when financial institutions can price loans based on an individual's risk.
Less Competition: This may do more than just inconvenience consumers. If there are fewer financial institutions offering loans in a state, this could reduce overall market competition and perversely cause the cost of credit to increase for all borrowers.
It could also cause consumers to seek credit options outside the regulated financial system that offer fewer, if any, protections.
What's Next: The Colorado law is scheduled to go into effect on July 1, 2024. Industry groups have filed a lawsuit arguing the law would undermine interstate commerce and subject state-chartered banks to different rules across the various states.
As policymakers consider legislation to opt out of DIDMCA, they should first seek to understand how this would make credit less accessible and more expensive for consumers in their state.
About the authors
Bill Hulse
Hulse oversees the day-to-day efforts of CCMC including policy development, advocacy, and communications.
