If signed into law, HB 4116 would make Oregon the latest jurisdiction to exercise DIDMCA's opt-out authority, following Colorado, Iowa and Puerto Rico.
On March 6, 2026, the Oregon state Senate passed HB 4116, a bill aimed at restricting out-of-state lenders from charging interest rates above Oregon’s 36 percent cap when lending to Oregon borrowers. The bill, which previously cleared the Oregon House of Representatives, now heads to Governor Tina Kotek, who has indicated she plans to sign it into law. This Alert (i) examines the background of state interest rate caps and the “loophole” that has allowed lenders to circumvent them, (ii) details Oregon’s recent legislative response to that loophole, and (iii) outlines the potential implications for the consumer lending market if other states implement similar legislation.
Background of State Interest Rate Caps
Most states impose caps, commonly referred to as usury limits, on the interest rates that lenders may charge consumers. These laws are designed to protect borrowers from predatory lending and ensure that consumer credit remains fair and affordable. Critically, however, these limits are not universal and vary from state to state. This disparity among the states has created significant tension in the age of online and interstate lending and, as discussed below, has opened a pathway for certain lenders to avoid interest rate limits that states have put in place.
In 1980, Congress enacted the Depository Institutions Deregulation and Monetary Control Act (DIDMCA), which authorized state-chartered banks to lend nationally at the interest rates permitted in their home states, a concept known as “rate exportation.” The original intent was to put state-chartered banks on equal footing with their national bank counterparts, who already enjoyed a similar preemptive power under federal law. See Section 521 of DIDMCA (codified at 12 U.S.C. § 1831d).
Consumer advocates, however, have long argued that this rate exportation power has been turned into a loophole that effectively undermines state usury limits. In practice, a fintech lender or online lending platform will partner with a bank chartered in a state with no interest rate cap (such as Utah), and have the bank nominally originate the loan. Because the loan is deemed to be “made” in the bank’s home state, that bank’s home-state rules (or lack thereof) govern the permissible interest rate, regardless of where the borrower actually resides. The result, consumer advocates contend, has been a boom in high-cost online loans that reach borrowers in states like Oregon at rates far exceeding what local law would otherwise allow.
Oregon’s Response
Oregon’s HB 4116 takes aim at this loophole by exercising an “opt-out” provision that Congress originally included in DIDMCA. This opt-out allows individual states to reassert their own interest rate limits on loans made to their residents by out-of-state, state-chartered banks. Specifically, the bill applies to “consumer finance loans,” which include secured and unsecured consumer loans or lines of credit of $50,000 or less with terms longer than 60 days. See Or. Rev. Stat. § 725.045(1)(a) (2025).
The bill’s chief sponsor, Representative Nathan Sosa, characterized the measure as essential consumer protection, framing the legislation as a necessary step to prevent online lenders from taking advantage of Oregon consumers who turn to credit in moments of financial need. If signed into law, HB 4116 would make Oregon the latest jurisdiction to exercise DIDMCA's opt-out authority, following Colorado, Iowa and Puerto Rico.
Implications for the Consumer Lending Market
Oregon is now poised to become the latest state to opt out of DIDMCA's rate exportation framework, and it is unlikely to be the last. Opt-out and true lender[1] legislation has also been proposed in Rhode Island, New York and Wisconsin in recent months. Lenders that rely on bank partnership models to originate loans nationally should monitor state legislative activity closely and be prepared for additional states to follow suit. At the same time, Republicans in Congress have introduced the American Lending Fairness Act, which would repeal DIDMCA’s opt-out provision and effectively bar states from enforcing their rate caps on loans originated by banks chartered in other states. Whether Congress ultimately acts could determine whether the opt-out movement gains further momentum or is curtailed at the federal level.
Lenders and bank partners that currently serve borrowers in Oregon through rate exportation models should begin evaluating the impact of HB 4116 on their existing loan products, pricing structures and partnership arrangements, as the bill would require compliance with Oregon’s 36 percent rate cap for loans to Oregon borrowers. Unless the legislation is vetoed by the governor, the opt-out is set to become effective in early June 2026.
For More Information
If you have any questions about this Alert, please contact Jonathan M. Petrakis, Joel N. Ephross, Max W. Fargotstein any of the attorneys in our Banking and Finance Industry Group or the attorney in the firm with whom you are regularly in contact.
Notes
[1] "True lender" laws look past the formal structure of bank-partnership lending arrangements to determine which entity is functionally the lender, based on factors such as which party holds the predominant economic interest in the loan or controls the lending program. The aim is to prevent non-bank lenders from using exempt banks as nominal originators to circumvent state usury and rate-cap laws.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.