DPC Produces Short (:90) Video on the Consumer Benefits of DIDMCA

Thanks to a unanimous 1978 decision by the U.S. Supreme Court, banks holding a “national charter” were to be governed by the interest rate caps of the states in which they were based, instead of the state in which the consumers lived. The nationally chartered banks started offering very attractive terms across state lines.

In response to the Supreme Court’s decision, Congress passed a bill called the Depository Institutions and Monetary Control Act of 1980 (DIDMCA), which allowed banks chartered under state law to have the same right to “export” their home-state interest rates as the national banks did.

The result of DIDMCA’s passage was vibrant competition among all banks—nationally and state-chartered—to provide more and more attractive terms on credit and to provide more credit options as well as to provide credit to more and more people. This especially benefited millions of previously credit-deprived and underbanked customers who were brought out of the margins and into the mainstream credit community. This helped fuel the economic expansion of the 1980s and beyond.

Unfortunately, in passing DIDMCA, Congress included a provision that would allow state legislatures to opt out of the law. At first, several states opted out. Over time, all but Iowa rescinded their opt-out laws after seeing the benefits to consumers in the other states.

It sounds absurd, but lawmakers in various states are now thinking about opting out of DIDMCA and setting back the most economically vulnerable families 50 years. They often couch their opt-out schemes in terms of fairness and consumer protection (an attempt to keep higher-interest-rate consumer loan products from being offered in their states). In reality, their bills implode credit access for consumers and small businesses. They also place their state banks at a disadvantage compared to the massive, impersonal, nationally chartered banks, which are charging the highest fees and are exempt from state DIDMCA opt-outs.

To provide a quick primer on DIDMCA, the Domestic Policy Caucus (DPC) created this video: https://www.youtube.com/watch?v=SPB9a9goz98

More information about the DPC Freedom to Borrow initiative is available at www.freedomtoborrow.org.