DIDMCA Opt-Out: Ruining Credit Access for Rural Iowa

Iowa operates in a pre-1980s credit market, and rural Iowans are the most disadvantaged when it comes to the availability of credit.

A Tale of Two States

Iowa is a tale of two states—a state within a state—one rural, one urban.

Banking and credit access in Iowa’s urban areas is good; banking and credit access in rural Iowa is dismal.

Iowa’s DIDMCA opt-out has ruined credit access for rural Iowans.

It is thanks to a unanimous 1978 decision by the U.S. Supreme Court in Marquette Nat’l Bank of Minneapolis v. First of Omaha Serv. Corp., authored by Justice William Brennan, that banks holding a national charter are governed by the interest rate caps of the states in which they are based instead of the state in which the consumers live.

Passed by Congress and signed into law by President Carter in 1980 in response to the Supreme Court ruling, DIDMCA allows banks chartered under state law to have the same right to export their home-state interest rates as the national banks do. Thus, DIDMCA puts state-chartered banks on equal footing with the massive nationally chartered banks like Wells Fargo, Citibank, and Capital One.

Because of this Supreme Court ruling and DIDMCA, unprecedented competition among banks has opened credit options for millions of people who previously were ineligible and had to rely on more expensive and risky alternatives. This environment has allowed many people who previously were on the margins of the credit community—or outside it—to become part of it and subsequently establish good credit ratings and be more confident about the future. This competitive consumer credit environment helped fuel the economic expansion of the 1980s and beyond.

It is unfortunate that in passing DIDMCA, Congress included a provision that would allow state legislatures to opt out of the law. Currently, only Iowa and Puerto Rico are opted out.

Consequently, lawmakers at the federal and state levels have proposed legislation to alleviate credit access problems in rural Iowa and to provide rural development incentives, which demonstrates the palpable impact of the state’s DIDMCA opt-out.

The solution seems clear: Iowa could rescind its DIDMCA opt-out and alleviate the credit access crisis in rural Iowa and eliminate the need for remedial legislation.

Read our one-pager here.