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New Interest Rate Bill Calls for Financial Inclusion

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A new bill introduced on Wednesday aims to change the way interest rates on loans are determined when they are transferred or sold in order to increase access to financial markets for low- and middle-income people.

Rep. Patrick McHenry, vice chairman of the House Financial Services Committee, and Rep. Gregory Meeks introduced the Protecting Consumers’ Access to Credit Act of 2017 in the House on July 19.

(Related: Fintechs Can Apply for Special Purpose Charter, but Should They?)

The bill would amend the Revised Statutes, the Home Owners’ Loan Act, the Federal Credit Union Act and the Federal Deposit Insurance Act to specify that the maximum interest rate set on loans when they are originated “shall remain valid with respect to such rate regardless of whether the loan is subsequently sold, assigned or otherwise transferred to a third party, and may be enforced by such third party notwithstanding any state law to the contrary.’’

McHenry introduced a nearly identical bill in 2016 that called for the above revision to be made to the Revised Statutes and the Federal Deposit Insurance Act only.

The Supreme Court refused to hear a case in 2016 about whether the National Bank Act, which preempts state laws regarding interest rates, maintains that preemption when loans are sold or transferred. In that case, a debt collector was sued for charging interest rates above the cap allowed by the debtor’s state. The U.S. Court of Appeals for the Second Circuit reversed an earlier decision and found that the debt collector’s were not pre-empted by the National Bank Act.

The bill is an attempt to codify the “long-standing legal precedent with the valid-when-made doctrine,” McHenry said in a statement.

According to the bill, “this important and longstanding principle derives from the common law and its application has been a cornerstone of United States banking law for nearly 200 years.”

Meeks noted that the bill could have implications for fintech firms that work with banks to increase access to financial services for underserved consumers.

“Since the financial crisis, nearly 5,000 brick-and-mortar branches shut their doors leaving many consumers without accessibility to affordable financial services,” he said in a statement. “By partnering with fintech innovators, banks – including a number of those certified as Community Development Financial Institutions – have been able to achieve efficiencies in underwriting, allowing them to lower costs and reinvest in communities that stand to benefit the most.”

— Read 44% of Americans Don’t Know When the Fed Last Raised Rates: WalletHub on ThinkAdvisor.


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