Just as consumers may finally be coming to grips with the cost-of-living crisis, legislators in several states are poised to restrict access to credit in 2025.

The move to restrict credit will be dressed up as a form of “consumer protection,” but make no mistake: It will reverse a trend of increased access to credit that we’ve been enjoying for decades, and it will hurt the people it is ostensibly designed to protect.

In the 1970s, our economy was transformed: Unprecedented competition among banks put the convenience of credit cards and other credit products into the hands of millions of people who previously were ineligible for them. Before that, many had to rely on more expensive and risky credit options, like pawnbrokers and loan sharks, and personal-relationship-based local store credit to make ends meet.

Thanks to a unanimous 1978 decision by the Supreme Court, banks holding a “national charter” were to be governed by the interest rate caps of the states in which they were based instead of the state in which the consumers lived. The nationally chartered banks started offering attractive terms across state lines.

In response to the Supreme Court’s decision, Congress passed and President Jimmy Carter signed the Depository Institutions and Monetary Control Act of 1980 (DIDMCA), which allowed banks chartered under state law to have the same right to “export” their home-state interest rates as the national banks had. This enabled state-chartered banks to compete on an equal playing field with massive, nationally chartered banks like Wells Fargo, Citibank and Capital One.

The result of DIDMCA’s passage was vibrant competition among all banks to provide more credit options and more attractive terms and to provide credit to more people. This especially benefited millions of previously credit-deprived and underbanked customers who were brought out of the margins and into the mainstream credit community. This helped fuel the economic expansion of the 1980s and beyond.

Unfortunately, in passing DIDMCA, Congress included a provision that would allow state legislatures to opt out of the law. At first, Colorado, Iowa, Maine, Massachusetts, Nebraska, North Carolina, Puerto Rico and Wisconsin all opted out. Over time, however, all but Iowa and Puerto Rico rescinded their opt-out laws after seeing DIDMCA’s benefits to consumers in the other states.

Fast-forward to the end of 2024, and lawmakers in a host of states are thinking about opting out of DIDMCA and limiting credit for the most economically vulnerable families, even as those families grapple with high prices that will not come down, even if inflation levels off.

Minnesota, Nevada, Rhode Island and the District of Columbia all floated the idea of a DIDMCA opt-out this year and ultimately did not act on it. However, the threat remains imminent for 2025. Colorado moved to reinstitute an opt-out in 2024, which is now mired in litigation. Sources say Oregon lawmakers will soon consider a DIDMCA opt-out. If passed, these bills will implode credit access for consumers and small businesses.

It’s instructive to look at Iowa — the only state to have opted-out of DIDMCA from the beginning. Iowa operates in a pre-1980s credit market, which puts that state’s consumers at a disadvantage. It also puts Iowa state banks at a disadvantage compared to the massive, impersonal nationally chartered banks. It’s these, the largest banks in the nation, that are charging the highest fees, and they’d be exempt from state DIDMCA opt-outs.

Of course, the effect of an opt-out is negligible to financially well-off consumers. Where the effect is felt most acutely is among marginalized consumers — those not highly regarded or well served by much of the financial services industry.

It’s important to understand:

–47 percent of U.S. consumers are non-prime or credit invisible (often recent college graduates and immigrants), which means they have credit scores below 660, unscorable credit, or no credit score at all.

–36 percent of American households will be financially insecure in 2024.

–57 percent of people surveyed say they experienced some level of difficulty in paying their usual household expenses over the last seven days.

These are the consumers who would be harmed by a DIDMCA opt-out — Americans who can’t get a loan from a bank and who struggle to access the credit they need. These consumers need more, not fewer, credit options to cover their day-to-day and emergency expenses.

Less well-to-do Americans should have myriad credit options just like wealthy people do to help weather financial storms and build a better future for their families.

Everyone who cares about the economic well-being of low-income, minority, young, and other marginalized Americans should resolve to oppose a DIDMCA opt-out in any state in 2025 and beyond.

Kent Kaiser is the executive director of the Trade Alliance to Promote Prosperity. He wrote this for InsideSources.com.