As a college student, I have grown accustomed to living a rather frugal lifestyle. Between food, books for class, rent, and much more, my finances are spread thin. Nonetheless, this has never been a big problem as I have benefited from quick credit options. Financial services like credit cards offer financially strapped individuals, such as college students, quick access to credit when it is needed most. However, this access could be reduced in Minnesota if some politicians get their way.
A 1978 Supreme Court decision authored by William Brennan established that banks with a “national charter” would be subject to the interest rate limits of the state in which the bank is based, rather than the state where the customer resides. In response to this, Congress passed the Depository Institutions Deregulation and Monetary Control Act (DIDMCA), which gave state banks, credit unions, and savings institutions the ability to export their interest rates as well, leveling the playing field between state and national banks. This created more economic competition than ever before and gave disadvantaged Americans across the country an opportunity to receive credit just like everyone else as options like Visa and Mastercard and other credit products became much more available.
Unfortunately, DIDMCA gives states the choice to opt-out of state-level interest exportation, and some Minnesota politicians are pushing for an opt-out. Legislators have filed a bill (H.F. 3680/S.F. 3932) to have Minnesota opt out of DIDMCA. It is a terrible idea.
An opt-out would set Minnesota back over 40 years and put our state banks at a major disadvantage, considering that nationally chartered banks would be unaffected. Competition should be encouraged, so why opt-out and limit both the state banks’ ability to compete and the consumer’s ability to benefit from the best possible deal? In the technology age, not even state lines should prevent consumers from finding the best deal.
While state-chartered banks would suffer from an opt-out, financially disadvantaged consumers would be the real victims. Consumers want as many options as possible, and opting out of DIDMCA would accomplish the opposite.
The average middle-class consumer may be able to get by through the use of federally chartered banks; however, low-income individuals would not be so fortunate. Nationally chartered banks have a history of being rather apathetic when it comes to low-income, potentially higher-risk consumers as the banks have no real incentive to offer financial services. And it is the nationally chartered banks that charge the highest fees. This means financially unstable individuals lose access to credit options that are essential to their comfort and survival.
As a 22-year-old, I lack much of a credit history, meaning I could be seen as an unreliable consumer to nationally chartered banks. Normally, I could find a smaller, state-chartered bank that could extend credit to me; however, if Minnesota were to opt out of DIDMCA the number of banks available for me to choose from would shrink significantly. Countless other Minnesotans and I rely on the efficiency and convenience of credit in times of unstable income, meaning an opt-out would have a serious impact on disadvantaged individuals within the state.
The cost of a college education today is higher than ever before, so why take away quick and easy credit options? Eliminating credit options will not eliminate the need for credit. Policymakers must reject calls to opt out of DIDMCA and should think about the Minnesotans like me who need credit the most.
