Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Oct 8, 2012

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A powerful piece of legislation is pending before a House subcommittee. If passed, it would affect every state and every prospective short-term borrower in the Country. Perhaps more specifically, it would affect the ongoing battles that are raging in cities, counties, and states between the pro-regulators on one side and short-term lenders on the other.

H.R. 6139, also known as the Consumer Credit Access, Innovation and Modernization Act, would give various lenders the ability to obtain a federal charter. This federal charter would grant them the power to sidestep regulation that hinders, limits, or even bans certain lending activity—such as payday and auto title loans—within individual state borders.

A payday loan is a short-term loan where a borrower is lent money but expected to repay on their next payday. An auto title loan is a short-term loan where a borrower’s vehicle equity is used as collateral in order to borrow money. In the event that a borrower can’t repay their auto title loan, their lender can repossess the vehicle. Both of these types of financing are arguably toxic forms of lending that trap low-income and poor credit borrowers in cycles of debt. Many states, counties, and cities consider these to be predatory lending.

Those same states, counties, and cities have developed legal frameworks that protect consumers from these forms of predatory lending. Should H.R. 6139 pass, then states that regulate or prohibit payday and auto title loans would see the veritable floodgates reopen and helplessly watch lenders triumphantly reinvade—provided these lenders have a federal charter.

A federal charter is essentially Congressional approval of a group’s mission, authority, and activities. As their name implies, federal charters grant wide-reaching operational permission to certain organizations, such as the American Red Cross and the Boy Scouts of America. Over 100 organizations and groups have obtained a federal charter.

Naturally, states decry H.R. 6139as a violation of their regulatory powers.

“This proposed legislation is an end run around Arkansas consumers and our State’s constitutional protections against usurious lending practices. We oppose any effort on any level to allow these kinds of businesses back within our borders,” said Arkansas Attorney General Dustin McDaniel in a press release.

41 states have joined together in a letter asking Congress to kill the bill which they say would preempt states from cracking down on short-term predatory lending—such as auto title loans. The letter is the work of 41 state attorneys general that wish to warn Congressional leaders of both parties—such as Nancy Pelosi and John Boehner—about H.R. 6139’snegative effects.

“This joint effort among attorneys general underscores the importance of killing this federal legislation that would provide no significant protections for consumers and have unintended consequences,” said Indiana Attorney General Greg Zoeller in a press release from the Office of the Indiana Attorney General.

Even politicians from within Congress have joined their attorneys general colleagues in voicing their opposition to this legislation of superweapon-scale.

“H.R. 6139 claims to help minorities, when in fact it would hurt them disproportionately by enabling predatory lending,” said Congressman John H. Conyers in an interview with the Washington Informer. “Far from helping these communities stay in the mainstream banking system, the Office of the Comptroller of the Currency charter would push them further into the economic margins.”

The bill is currently under review by a congressional committee. Time will tell if the committee decides to send it to the House or Senate where a superweapon in the short-term loan war may finally be deployed across the entire country.