The House Financial Services Committee voted 31-18 on Sept. 16 to advance H.R. 7866, the American Lending Fairness Act of 2026, which would settle a live legal dispute over a 1980 federal law in favor of out-of-state banks. The bill would clarify that when Colorado or Oregon “opts out” of a federal rate-preemption provision, that opt-out only strips the exemption from banks those states themselves charter, not from banks chartered elsewhere lending to their residents. The measure has cleared only a House committee; nothing about interest rates on an existing loan changes today.
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What A 1980 Law’s Opt-Out Clause Actually Says
Section 525 of the Depository Institutions Deregulation and Monetary Control Act of 1980 lets a state “opt out” of the federal preemption that otherwise allows a bank to export its home state’s interest rate to loans made anywhere in the country. A National Law Review analysis of the dispute explains that H.R. 7866 takes the position that “the opt-out applies only to banks chartered by the opt-out state” and would not let an opt-out state “impose its interest-rate limitations on loans made by state banks chartered in another state.” Colorado and Oregon read their own opt-outs the other way, arguing they can cap what any state-chartered bank, wherever it is based, charges a state resident.
Why Colorado And Oregon Are The Test Cases
That disagreement is not hypothetical. Colorado’s version of the dispute is pending before the en banc U.S. Court of Appeals for the Tenth Circuit, and Oregon’s is being litigated in federal district court, with New York’s legislature separately weighing an opt-out bill of its own, according to the same National Law Review analysis. A separate National Law Review report on the markup notes the bill would resolve that pending litigation by statute rather than wait for the courts, which is why bank trade groups pushed for a legislative fix while consumer advocates in both states have opposed one, arguing it would let installment and rent-to-own-style lenders route loans through an out-of-state charter specifically to avoid a rate cap voters or state lawmakers put in place. Committee Chairman French Hill described the bill as “restoring a level playing field for state-chartered banks and credit unions,” allowing them to lend nationwide under their home state’s interest-rate rules rather than the rules of wherever a borrower happens to live.
The Committee Vote Behind The Bill
The committee’s own record of the Sept. 16 markup shows H.R. 7866 “AGREED TO by a vote of 31 YEAS and 18 NAYS,” a wider margin than the same day’s CFPB funding vote but still short of unanimous. The bill’s sponsor is Rep. Warren Davidson, R-Ohio, who first introduced it in March; it sat before the committee for roughly six months before this markup moved it forward. It passed by a wider margin than the same day’s CFPB funding bill, which cleared 28-21, suggesting a handful of members who split from their party on one measure did not do so on the other, though the committee’s public vote record does not break down which individual members crossed over on either bill.
What The Underlying State Laws Are Trying To Do
Colorado’s and Oregon’s opt-outs exist because each state’s legislature or voters, at some point, decided that a rate cap on consumer loans belonged to state law rather than to whatever a bank’s home-state charter allowed, and DIDMCA’s Section 525 was written specifically to let a state make that choice for loans made inside its own borders. H.R. 7866 does not repeal either state’s rate cap outright; it narrows whose loans that cap actually reaches, by reading the 1980 opt-out language as applying only to banks the state itself charters rather than to every bank doing business with the state’s residents. That distinction, contested for years in the courts, is exactly what a bill can settle that litigation cannot: a single, nationwide answer instead of a Tenth Circuit ruling that binds only part of the country.
What Would And Would Not Change For A Borrower
Nothing in the bill unwinds the terms of a loan already on the books; the fight is over what rate a new loan, or a rate change permitted under an existing loan’s terms, can carry going forward if an out-of-state, state-chartered bank makes it. A Colorado or Oregon resident with an installment loan or a rent-to-own-style credit product from an out-of-state bank is the consumer most directly exposed to whatever the courts, or Congress, ultimately decide about Section 525, since it is precisely those loans that rely on exporting a rate higher than either state otherwise allows. The federal law at the center of the dispute, DIDMCA, dates to 1980 and was written to preempt state usury caps nationally by default; only a handful of states, Colorado and Oregon among them, ever exercised the opt-out this bill would narrow, so the practical reach of H.R. 7866, even if it becomes law, is limited to residents of those specific states rather than borrowers nationwide, a scope the committee’s own Sept. 16 vote record confines to Section 525 and nothing broader.
What A Rate-Cap Fight In Congress Does Not Settle
H.R. 7866 would repeal the DIDMCA opt-out reading that lets Colorado and Oregon cap the rate an out-of-state bank charges their residents, but the bill has cleared only a House committee and, if it becomes law, would settle future lending arrangements rather than unwind a loan already on the books. A loan already open, and any letter proposing to raise its rate, still has to be checked against its original terms and the same debt and deposit rules that apply regardless of what Congress eventually does.
The Bank Account & Debt Protection Kit lays out the debt-validation steps and the frozen-account response for testing whether a lender’s claim on an account or a loan is enforceable.
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This article was produced with AI assistance and checked against the primary sources linked above.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
