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Dreher Tomkies LLP
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USURY RESTRICTIONS PROPOSED IN CONNECTION WITH SENATE FINANCIAL REFORM BILL

Among more than 150 proposed amendments to Senator Christopher Dodd’s latest reform bill, the Restoring American Financial Stability Act of 2010 (S.A. 3739), are two proposals introduced on April 29, 2010 that would amend the Truth in Lending Act to limit interest rates on credit card accounts.

The first proposal, S.A. 3746, submitted by Rhode Island Senator Sheldon Whitehouse, generally would limit the interest on consumer credit transactions (other than transactions secured by real property) to the maximum rate permitted by the law of the consumer’s state of residence. Senator Whitehouse’s remarks in the Congressional Record explain that his amendment would address “runaway credit card interest rates” by overturning the U.S. Supreme Court’s 1978 decision in Marquette National Bank of Minneapolis v. First of Omaha Service Corporation. Whitehouse suggested that the Supreme Court’s interpretation of the word ‘‘located’’ in the National Bank Act as meaning the location where the bank was headquartered or domiciled created a “loophole” through which banks could avoid state interest rate restrictions by reorganizing as national banks and moving to states that had the weakest consumer protections. His amendment would apply to all types of consumer lending institutions, not just national banks, which would effectively eliminate interest rate preemption authority for state banks as well as national banks. The proposal is modeled after Whitehouse's Empowering States' Right to Protect Consumers Act (S. 255), which was introduced in January 2009.

The second proposal, S.A. 3740, submitted by Vermont Senator Bernie Sanders, generally would establish a national usury rate for credit card transactions of 15% (inclusive of all finance charges). Senator Sanders proposed a similar amendment (S.A. 1062) during deliberations on the Credit Card Accountability Responsibility and Disclosure Act of 2009. The Senate considered, but did not vote, on S.A. 1062.

Whether or when or the Senate might give serious consideration to S.A. 3746 or S.A. 3740 is unclear. The answer may be as much political as it is thoughtful, and turn in part on the shape and progress of the proposed consumer financial protection agency and pending Board rules. These proposals follow a large number of other bills and amendments that have been introduced within the last year that seek to impose a variety of caps and limitations on fees and charges in various contexts, including efforts to limit or overturn the implications of Marquette.

  • Mike Tomkies and