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The debate over who gets to dictate interest rates, to whom, is a complex topic that carries a messy legislative history, an unclear impact and a potentially dated analysis of lending. 

Last week’s newsletter about contradicting court decisions from Colorado barely brushed the surface of the myriad issues that stem from the Depository Institutions Deregulation and Monetary Control Act of 1980, also known as DIDMCA. I think these four questions are worth discussing; if you’re like me and think about them for too long, they may drive you crazy. 

Me, emotionally RN

Also, some important and relevant news for this newsletter: Oregon’s legislature passed HB 4116, its DIDMCA opt-out bill, as of March 6. It now heads to the governor’s desk for signature and would take effect 91 days after the end of the legislative session if it passes into law. Rhode Island’s legislature is exploring HB 7850, which would serve as the state’s opt out. 

The question of which state-chartered banks are impacted by a state’s DIDMCA opt-out has been debated by various states in the legislation’s 40-year existence. “It's somewhat unclear exactly what Congress meant” as to which institutions a state’s opt-out applied, said Todd Phillips, an assistant professor at the J. Mack Robinson College of Business at Georgia State University. 

He said one way to interpret DIDMCA was that Congress would let state banks export their home state’s interest rate, unless their state didn’t want the banks to. 

“That is what I think Congress was thinking, but it doesn't make any sense,” he said of the potential impact.

Impact aside, this interpretation of DIDMCA’s rationale makes a little more sense if you interpret it through the paradigm that “state banking agencies should be in charge of their state banks,” said John Pitts, vice president for government relations, public policy and social impact at Affirm. 

“It’s this principled idea of a dual banking system, that the final decision maker for any state bank is the state that chartered the bank,” he said. He added that this led to “the functional business understanding that the opt out means you’re opting your state banks out of exporting their interest rates” to other states.

That interpretation seems borne out in the history of the six states that opted out of DIDMCA between 1980-83 and opted back in between 1986-98, according to a 2023 compilation of the legislative record of the DIDMCA states by the American Financial Services Association. The American Financial Services Association is a named plaintiff in the Colorado court cases. 

According to the legislative records, lawmakers decided to opt back into DIDMCA and interest rate parity because state-chartered banks in their respective states were at a competitive disadvantage with national lenders. This rationale seems to align with the lower court’s interpretation, that Colorado’s DIDMCA opt-out means Colorado state-chartered banks must follow Colorado’s interest rate when lending to people outside the state.

“If we had to generalize the reason six of the seven states opted back in, we would say it was to help their own state’s state-chartered banks compete on an even playing field with state-chartered banks chartered in other states,” the authors of the AFSA paper wrote.

Colorado argued that its DIDMCA opt-out applied to state-chartered banks based outside of the state lending to Colorado residents. Todd said that “seemed a little bit contrary to what Congress probably intended,” but the state’s argument, which was adopted by the 10th Circuit, “makes a lot of sense.”

How does Iowa, which has continued its initial DIDMCA opt-out, conceptualize its opt-out? In March 1980, the Iowa attorney general’s office offered this opinion: 

Author highlight

Zachary Hingst, legal counsel in the Iowa Division of Banking, told me that “[t]he opt out means that any loan made in Iowa by a state-chartered bank is not covered by Section 1831d of the Federal Deposit Insurance Act (12 U.S.C. section 1831d) with respect to the maximum permissible interest rate,” in an emailed request for comment. (Emphasis mine.) “The Division of Banking has licensing and supervisory authority with respect to Iowa-chartered banks and non-depository consumer lenders, including servicers of consumer loans, and compliance with these legal requirements is part of our ongoing supervision and examination processes for all regulated entities.”

I followed up with Zachary about what “any loan made in Iowa” means here (see above). But an indicator of how the state thinks about its interest rate cap can be gleaned from a 2022 assurance of discontinuance with Ogden, Utah-based TAB Bank. Iowa alleged that TAB Bank made 1,611 consumer installment loans to Iowa residents with assistance from its service provider EasyPay between March 2020 and April 2022 that carried finance charges beyond the state’s permitted maximum of 21% annual percentage rate. TAB told Iowa it voluntarily ceased making the loans and would provide restitution to the residents who received the loans; it did not intend to resume making them, and if it did, it would give the state written advance notice. 

The assurance with TAB made it clear that Iowa’s interpretation of its DIDMCA opt-out is “that an out-of-state state chartered bank …  cannot export the interest rate permitted by its home state of Utah,” according to a 2023 analysis by the law firm Mayer Brown. “The AOD is likely to result in out-of-state state-chartered banks excluding Iowa residents from their loan programs or limiting the rate of interest on these loans to 21%.”

Colorado cited this 2022 agreement in its filing arguing against the en banc review. The state said the bank trade groups and amici’s concerns about the administrability of the decision ignored Iowa’s existing DIDMCA opt-out and enforcement. 

“Iowa has maintained a consistent opt out and enforces it against out-of-state, state-chartered banks,” the state wrote. “If the Panel Opinion’s interpretation of § 1831d’s opt-out provision, which is consistent with Iowa’s, threatened the dual banking system, then Iowa’s interpretation would have already caused the challenges amici claim. In addition, the Panel Opinion noted that nonbank lenders are subject to state interest rate caps.”

Oregon’s DIDMCA opt-out would enforce an interest rate cap on installment loans of, generally, 36%. The Oregonian wrote that Oregon’s Department of Consumer and Business Services provided written testimony that five of the 190 licensed consumer finance companies in Oregon charge above that cap; the agency added it knew of 22,000 loans since 2020 that had been made above the cap. Testimony in support of the cap points out that loans that carry rates beyond this cap are made by online lenders that partner with out-of-state banks, sometimes mentioning that these are also state-chartered banks. 

It’s been strange to spend two months researching DIDMCA and realize that this legislative effort stems from — in the case of Oregon — harm caused by interest rates on 22,000 loans over five years. And then to reflect that a DIDMCA opt out doesn’t actually prevent or prohibit this activity. Instead, the legislative effort pushes this lending to the realm of national banks and then hopes that the national banks decide to not engage in this lending. 

What actually happens when a state opts out of DIDMCA? Iowa has been running a natural economic experiment with its citizenry and banks, and yet I couldn’t find much research on it. The banking industry and state legislators should know what the potential impacts of DIDMCA are if they risk disadvantaging one group of financial institutions in the interest of consumers — especially if the impact is negligible or nothing. I have many, many questions about Iowa’s banking environment, like: 

• Has Iowa’s DIDMCA opt-out made credit more affordable through the interest rate cap or reduced available credit? 
• Do most state-chartered banks, both based inside Iowa and outside it, lend under the interest rate cap, making this mostly a nonissue for them when lending to Iowa residents?
• Are residents still accessing credit with interest rates beyond the cap from national banks? The American Fintech Council recently shared its estimation, based on an analysis of its membership, that at least 250,000 Iowans miss out on loans at responsible rates annually, totaling approximately $300 million.
• Are banks in Iowa harmed or helped by how the cap is enforced? 
• Did Iowa banks change their charters? Did banks in the state that formed after the opt-out select national charters?

Let’s go back to my original, still somewhat unsolved issue from last week: What does it mean to make a loan and why do I have to think about this in 2026?

The legal question of where a loan is made is a boring, settled issue. Federal Deposit Insurance Corp. Opinion 11, issued in 1998 and which cites the OCC’s Interpretive Letter No. 822, discussed the location of three non-ministerial functions that determine when a loan is made. 

In 1998, I am sure there was significantly more physical geography involved in banking activities, and significantly less activity happening over the phone, fax, wire or mail. I’m sure customers walked into branches to apply for loans. Those banks might be headquartered in the same state the customer lived in, given that national interstate banking was only four years old at this point. Lending decisions may have been actually made by credit officers in the bank’s headquarters office, potentially on an Apple iMac G3 or a Gateway PC. Maybe a loan officer even got to use the new Windows 98 operating system from Microsoft Corp.

But this feels like a strange and anachronistic question today. What do you mean, where a loan is made? I apply for loans on my computer or at a car dealership. There isn’t a printer in the state where my lender is headquartered that prints off my digital application, so a credit officer working in a big office tower in that city looks at it. In many ways, loans are electronic, digital, ephemeral. 

“There's this technical idea of ‘where a loan is made’ and that has vexed courts for a long time because, especially in today's banking, there's not an office someone goes into and fills out a paper application and meets with the loan officer and then later gets a check,” said Michele Alt, a partner at the consulting firm Klaros. She said the steps that the FDIC cited in its Opinion 11 have become “very murky, because banking now is much less geographically based compared to when these statutes were written.”

To even ask, in 2026, where a loan is “made” is to accept the premise that there’s any relevant geographic component at all. It’s a legal contract, a debt obligation; a bunch of digital money that shows up in some electronic account somewhere. It’s not understood to be made in a place or a building.

John pointed out that people conduct financial transactions in all sorts of locations, while a bank’s headquarters does not move. It was logical for judges, lawmakers and regulators to base a loan’s place of origin in the bank’s headquartered state to establish the regulatory framework it needed to follow. The idea that loans are made in physical, determinable places allows us to debate the real question: which place? But I wonder if the U.S. might be close to the end of the utility of this logic. As John pointed out, where will the first stablecoin or blockchain loan be made, if it involves computers across the globe? What interest rates will apply then?

This is the debate we’re having today — which banks, where — instead of grappling with what it might mean that the U.S.’s interest rate exportation framework based on state boundaries failed to imagine a world where widespread digital technology rendered geography completely irrelevant in almost every other arena. 

FROM THE VAULT

What’s on my mind and filling my time:

🦵🏼 Adding some warmups before my games: after reading this piece in The New York Times magazine about the increase in A.C.L. tears in girls and women athletes and why there hasn’t been more done to implement movements and drills proven to reduce these injuries. (I remember when the FIFA 11+ came out!)

🎰 Is the only good use of prediction markets: this guy who bet all of (what I assume is his family’s) life savings on whether Elon Musk’s Department of Government Efficiency would reduce government spending and won? The wager was $342,000, and he profited $128,000. 

🎙️ On Bank Nerd Corner: I hosted my friends Alex Johnson of Fintech Takes and Jason Mikula of Fintech Business Weekly to discuss fraudsters who appeared on Forbes’ 30 Under 30. It’s a long but fun conversation about some of these infamous all-stars, the incentives they respond to and the continuum of criminality.

🛫 Catch Me At: CBA Live 2026, March 30-April 1, in San Diego. This will incidentally be over my birthday, so everyone has to be nice to me the entire conference.

Thanks for reading, and thanks once again to my colleague Claire Monterroyo for working so diligently on these memes! Any mistakes are solely my own. As always, let me know your thoughts on this piece. And next week, we’ll take a break from DIDMCA to look into a grab bag of interesting things happening around the financial services industry.

– Kiah

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