A recent bill In Colorado threatens to not only cut off low-income consumers from accessing credit but could risk starting a trend in other state legislatures. Lawmakers in other states should take heed and not follow suit.
Colorado consumers may see their access to credit tighten. The legislature “opted out” of a federal law that allowed non-Colorado state-chartered banks to set rates based on their home state, even if those rates were higher than permitted in Colorado. The risk to credit access comes at an inopportune time, as regular incomes could decline as the economy slows down.
Further complicating the situation is a rule passed by the Federal Deposit Insurance Corporation (FDIC), which allowed consumers greater access to small-dollar short-term loans. Before 1978, state-charters banks were at a competitive disadvantage to federally chartered banks because, unlike federal banks, state banks were subject to the usury laws of each state they operated in, not just their incorporation state.
This changed when Marquette v. First of Omaha Service Corp concluded that Section 85 of the National Bank Act entitled out-of-state state-chartered banks to the same usury exceptions as federal banks. Under this change, banks chartered in Idaho would only be subject to Idaho usury laws when operating in other states, while previously Idaho banks would be subject to Idaho’s and any state, they operated in’s usury laws.
Read the full Real Clear Markets article here.
Isaac Schick is a policy analyst at the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.