Rule allowing predatory lending from bogus lenders must end now
At a time when bipartite agreement is rare, last month, three Republicans voted with all Senate Democrats on a resolution under the Congressional Review Act (ARC) to overturn a rule finalized last year by the Office of the Comptroller of the Currency (OCC) that protects predatory lenders who evade state interest rate laws. The House of Representatives should follow suit and do so quickly; the rule does an active harm to small enterprises, Veterans and consumers who face 200 percent APR loans who are illegal in almost all states.
The so-called OCC true lender rule allows non-bank lenders to disguise their loans as bank loans – exempt from state rate caps and able to charge extremely high interest rates without limits – simply by finding a dishonest bank to list as a lender. Payday Lenders Tried These “Bank Rental Programs” First two decades ago. But the courts, building on centuries of anti-escape law, looked at the facts and followed the money to find the “real lender” who managed and benefited from the loan program. The OCC rule overturns the real lender doctrine and prevents the courts from looking beyond the bogus lender listed in the fine print.
The bogus lender rule is currently used to defend destructive loans. Restaurant owners battling 268% APR loan secured by now foreclosed property come up against the argument that the rule allows this rate despite the 30 percent of the criminal usury law.
Another non-bank lender recently invoked the rule to defend a 160 percent APR loan to a disabled veteran in California, where the legal rate is 24%. The lender argued that the bogus lender rule was “consistent” with an older and discredited ruling that allowed a payday lender who owned 95% of a loan to escape state law since a bank with a insignificant role was identified as the lender.
The “bogus lender” rule emboldens a growing wave of bank rental programs. Several payday lenders are openly offering installment loans in thousands of dollars at and exceeding 200 percent APR – a rate prohibited in 42 states. These predatory lenders target financially vulnerable people and communities of color and trap consumers in unaffordable debt. Rent-a-bank lenders even flout price caps approved by voters – which is why the Republican Attorneys General of Arkansas, Nebraska and South Dakota Support overturn the rule.
A CRA vote would immediately eliminate the damage done by the bogus lender rule. Small businesses, veterans and consumers trying to recover from the COVID-19 economic crisis can’t wait years for uncertain OCC regulation. This urgency explains why a grand bipartite coalition of state attorneys general, state regulators, state legislators, jurists, faith groups, credit unions and nearly 400 Consumer, veterans, small business, disability rights, human rights, labor and civil rights groups support the CRA resolution.
The CRA, which prohibits judicial review, gives the OCC After protection against litigation than the development of regular rules, which could be challenged as arbitrary and capricious. A CRA vote would not prevent the OCC to reconsider the subject of the rule; the Trump administration reissued the rules after Obama administration rules have been repealed. But one of the benefits of the CRA is that it prevents an “essentially the same” rule that protects evasion of state law by predatory lenders.
Responsible fintech-banking partnerships that aren’t designed to evade the law don’t need the rough rule of the OCC. The vast majority of these partnerships are not even covered by the rule, which does not apply to state chartered banks. Senator Cynthia lummisCynthia Marie LummisRule Allowing Predatory Lending From Fake Lenders Must End Now Rick Scott Introduces Bill Banning ‘Vaccine Passports’ for Hillicon Valley Domestic Flights: Amazon Faces Racial and Gender Bias Lawsuits | Senate trade panel pushes Biden’s top science candidate forward | Colonial Pipeline CEO to testify on Capitol Hill in June MORE (R-Wyo.), One of the founders of the U.S. Senate Financial Innovation Caucus, voted for the ARC, explain that the rule creates an uneven playing field that puts state banks at a disadvantage. The caucus co-founder, the senator. Kyrsten SinemaKyrsten Sinema Al Gore pressured Biden not to cut climate plans in infrastructure deal White House briefed on bipartisan infrastructure deal but says questions remain (D-Arizona) also voted for the CRA.
Proponents of the rule also confuse it with the so-called “valid-when-done“reign. Canceling the first has no impact on the second or on what interest rate laws apply to debt buyers or other non-bank assignees of actual bank loans (although the rule of validity should also be reversed).
The Pollyannaish claims made to defend the pale bogus lender rule in the face of undeniable explosion predatory bank rental systems and the use of the OCC rule to defend them. States have had the power to limit interest rates to protect their residents since the founding of this country, but this power is now in serious jeopardy. Upholding the power of states to enforce their own laws is do not a partisan issue. The OCC’s bogus lender rule must end. Now.
Lauren Saunders is Associate Director of the National Consumer Law Center, specializing in banking security.