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On November 30, Washington D.C. introduced District of Columbia Council Bill B 25-0609, which would opt the state out of Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (“DIDMCA”) with respect to loans made in the District of Columbia, and would add “anti-evasion” and territorial application provisions to the D.C. Official Code (we discussed similar DIDMCA opt-out legislation in Colorado in a blog post here). 

Section 521 of DIDMCA is a federal law enacted to create competitive equality between state-chartered banks and national banks. Section 521 gives federally insured banks, state credit unions, and state savings institutions the ability to export the interest permitted under their home state laws to borrowers in other states notwithstanding any interest limitations in the borrower’s state. According to the sponsor of the bill, “if the District opts out of this part of DIDMCA, the District can impose its usury caps to prohibit these state-chartered banks (e.g., a Delaware or South Dakota bank) from importing that state’s usury regulations (neither state has a cap on interest rates) when offering credit terms to District residents.”

B 25-609 also adds an anti-evasion provision, stating that the definition of a “lender” includes any person that offers, makes, arranges, or facilitates a loan, or acts as an agent for a third party in making or servicing a loan, “including any person engaged in a transaction that is in substance a disguised loan or a subterfuge for the purpose of avoiding this chapter, regardless of whether or not the entity or person is subject to licensing”, and that (a) holds “directly or indirectly, the whole, predominant, or partial economic interest, risk or reward” in a loan, (b) markets or brokers the loan and has a right to acquire an interest in the loan, or, (c) based on the “totality of the circumstances.” should be considered a lender. We have discussed the enactment of similar anti-evasion provisions in other jurisdictions here and here.

Putting It Into Practice: If B 25-0609 in enacted, Washington D.C. would join Iowa, Puerto Rico, and (effective July 1, 2024) Colorado in opting out of Section 27 pursuant to Section 525 of the DIDMCA. We anticipate that similar bills will be introduced in other states.