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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.