OCC Acts to Embolden Predatory Lenders, Eviscerate State Rate Caps
Late last month, the Office of the Comptroller of the Currency (OCC) finalized the “True Lender Rule,” which fundamentally calls into question the power of state governments to independently regulate interest rate limits and could unleash predatory lending in all 50 states. The rule would protect predatory, nonbank lenders from state enforcement by overturning the long-standing true lender doctrine, which has been used by state regulators and courts to stop lenders from using banks to evade state interest rates.
Interest rate limits are the single most effective tool that states have to protect residents from predatory loans. At least 45 states and the District of Columbia have enacted interest rate caps on installment loans, with median annual percentage rates of 25%-38.5% depending on the loan terms. Predatory lenders have sought to skirt these state rate caps by entering into “rent-a-bank” schemes where they launder loans through banks, which are generally exempt from state rate caps, to be able to charge exorbitant interest rates.
State regulators have long argued that the non-bank predatory lender is the “true lender” of the loan, as they have the predominant economic interest in the loan. In contrast, the OCC rule states that, by merely putting the bank’s name in the fine print, the bank becomes the true lender.
The rule takes away state regulators’ main enforcement tool to stop interest rate evasions. For example earlier this year DC Attorney General Karl Racine filed a lawsuit against Elevate for charging interest rates between 99 and 251%, arguing that Elevate, not the bank partner, was the true lender of the loan. Elevate was lending to DC residents with interest rates up to 42 times the legal limit.
“The OCC’s rule usurps state power to prevent usurious rates, regulate non-bank lenders, and uphold their state interest rate caps,” said Rachel Weintraub, CFA Legislative Director and General Counsel. “The OCC’s rule eliminates state regulators’ key enforcement tool to protect consumers from these predatory products and the dire consequences of these products,” she added.
CFA had previously urged the OCC to withdraw this disastrous rule in individual comments, a separate joint comment letter with 12 consumer and civil rights groups, and a shorter comment letter submitted by more than 100 community based organizations across the nation.
“The country is facing unprecedented public health and financial crises, and we have seen, time and time again, that predatory lenders target the most vulnerable consumers. With this rule, the OCC is dismantling safeguards enacted by states to protect those consumers from vicious debt cycles,” stated Rachel Gittleman, CFA Financial Services Outreach Manager. “This rule will empower predatory lenders at a time when the OCC should be focused on protecting American consumers,” she added.
States Look to Improve Insurance Premium Pricing, Protect Consumers
Two states, Nevada and New Jersey, are currently considering consumer protection measures to limit the use of socioeconomic factors in setting insurance premiums. The first of these is a proposed regulation from the Nevada Division of Insurance that would ban the use of credit information to raise consumers’ insurance premiums during the COVID-19 pandemic and for two years afterwards. The second is a bicameral bill currently under consideration in the New Jersey state legislature that would prohibit auto insurers from considering drivers’ occupation, level of education, or credit history when determining eligibility for coverage or setting premiums.
In a comment letter submitted to the Nevada Division of Insurance in late September, CFA Insurance Expert Doug Heller and Research and Advocacy Associate Michael DeLong wrote that this rule “will protect consumers from being unfairly penalized by circumstances beyond their control and prevent unnecessary premium hikes during this challenging time.”
They noted that, with the COVID-19 pandemic still raging, American consumers are driving less and getting in fewer accidents. This dramatic shift in American driving habits has led to auto insurers reporting double- and triple-digit spikes in their net income during the pandemic. The proposed regulation “will provide much needed relief to many Nevadans who do not deserve, and cannot afford, to see their insurance premium rise,” Heller and DeLong wrote.
Without addressing this problem, they warned, “Nevadans who are impacted by COVID-19 shutdowns and declining credit will be penalized by insurers and have to pay higher auto insurance premiums, even though they are driving less (and on less crowded roads).”
The rule also has another important element: requiring “insurers that have already increased consumer premiums under these circumstances to revise those premiums and refund the amounts that consumers overpaid.” This retroactive relief ensures that Nevadans who faced the financial toll of this pandemic in its earliest stages are still covered and protected.
The second of these state measures, a bicameral bill (S-111/A1657) currently under consideration in the New Jersey state legislature, received similar support from CFA’s DeLong, who testified in support of the bill last month. In his testimony, DeLong stated that the bill “will help make auto insurance more affordable for New Jersey consumers, eliminate unfair discrimination in auto insurance markets, and help consumers during hard economic times.”
The legislation bans auto insurance companies from assigning risks to rating plans based on:
- A consumer’s education level
“About 59% of New Jersey residents face higher rates when companies are allowed to penalize drivers if they don’t have a college degree. The percentage penalized is even higher for African American and Latinx residents.”
- A consumer’s employment, trade, business, occupation, or profession
“Past studies have found that numerous auto insurers charge substantially higher premiums—10%, 20%, even 40% or more—to good drivers just because they work in a low wage job. Good drivers should not be penalized simply because of their occupation.”
- A consumer’s credit score or any information derived from their credit report
CFA has analyzed premium data for New Jersey and found that the use of credit information as a factor in auto insurance pricing can be detrimental. For example, “a 35 year old with excellent credit would pay an average annual premium of $842.14, but the same individual with fair credit would pay a premium of $1,384.40, and if they had poor credit, their premium would be $2,152.54,” a difference of $1,3104 simply due to their credit score.
“This proposed bill is a critical step toward protecting consumers from unfair discrimination and systemic racism in auto insurance. By requiring that insurance eligibility and rates be based on driving-related factors and not on unfairly discriminatory socioeconomic factors, insurance will become more affordable to safe drivers throughout the state who currently struggle to afford and maintain coverage,” DeLong concluded.
Consumer and Public Health Groups Push for Cancer Warning on Alcohol
According to the Surgeon General, the link between alcohol consumption and cancers is now clear. Alcohol consumption represents the third largest contributor to cancer cases in women (behind smoking and obesity). However, surveys indicate that fewer than half of consumers are aware of the connection between alcohol and cancer. In response, a coalition of consumer and public health groups, including CFA, is pushing to increase awareness of this link through an updated warning on alcohol products.
The groups submitted a petition to the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau (TTB), calling for a new warning label to be printed on alcohol, such as:
WARNING: According to the Surgeon General, consumption of alcoholic beverages can cause cancer, including breast and colon cancers.
Currently, all alcoholic beverage labels must include a warning statement regarding motor vehicle operation and drinking while pregnant. The law requiring that statement, passed in 1988, directs TTB to consult with the Surgeon General and “promptly report” to Congress if “available scientific information” justifies a change in the statement. The petitioners argue that the time has come for TTB to fulfill that reporting duty and update the warning accordingly.
The groups point to the Surgeon General’s 2016 report as key evidence of the need to update the warning. The report documents the link between alcohol consumption and cancers of the breast, oral cavity, esophagus, larynx, pharynx, liver, and colorectum. “Even one drink per day may increase the risk of breast cancer,” the report states.
The Surgeon General’s conclusions are also consistent with those of other public health authorities, such as the National Cancer Institute, which points out on its website that “there is a strong scientific consensus that alcohol drinking can cause several types of cancer.” Even “light” and “moderate” drinking have been tied to various cancers.
More recently, the Dietary Guidelines Advisory Committee, the group responsible for issuing and updating the Dietary Guidelines for Americans, recommended that the 2020 guidelines lower the limit of alcoholic drinks per day for men down to one, in part because of cancer risk.
“The government has the responsibility to give consumers the scientific information they need to make informed decisions about alcohol, just as it does with tobacco,” said Thomas Gremillion, CFA Director of Food Policy. “Consumers have a right to know that alcohol causes cancer, so they can decide for themselves whether drinking is worth the risk,” Gremillion concluded.
Education Secretary Urged to Extend Suspension of Federal Student Loans
With the number of COVID-19 cases on the rise, 77 advocacy groups, including CFA, sent a letter to Secretary of Education Betsy DeVos last month urging her to extend the suspension of payments on federal student loans through at least September 2021. The current suspension on federal student loans and the halt on collections, designed to address the economic repercussions of the COVID-19 pandemic on student borrowers, is set to expire on December 31, 2020 if the government fails to extend these protections.
In their letter, the groups pointed out that, “current economic projections, coupled with the spike in the average number of new coronavirus cases per day, indicate our nation will remain in a state of emergency for many months ahead.” In order to reflect this trajectory, the groups called on the Department of Education to use the authority granted to them under the Higher Education Act to meaningfully solve the student debt problem.
“At the very least, by extending the repayment pause, your action can support millions of borrowers—particularly borrowers of color, who are disproportionately impacted by the current crises, and others experiencing significant financial distress—who need the financial support this repayment pause brings to their household budgets,” the groups stated.
While the CARES Act was intended to provide some protections to borrowers, both the Department of Education and at least one student loan servicer have violated the protections in the Act. Months after the Act’s passage, borrowers sued the Department of Education for illegally garnishing the wages of more than 54,000 borrowers, despite being prohibited by the CARES Act. Similarly, at least one student loan servicer illegally provided inaccurate information on nearly five million borrowers to credit bureaus, which then reported this information to third parties, resulting in credit scores dropping and a loss of affordable credit.
“If student loan payments resume on January first, repayment will compound the difficulty created by unprecedented labor shocks and ongoing economic hardship,” the groups wrote. “The most recent Census Household Pulse Survey showed that ten percent of adults were either ‘sometimes’ or ‘often’ without enough food to eat in the last week, and 31.9% of adults live in households where it has been somewhat or very difficult to pay usual household expenses,” they added.
“The uncertainty looming over the country’s 43 million student loan borrowers will affect the nation’s small businesses and the broader retail sector, as ongoing uncertainty about upcoming loan repayments could lead many people to hold back from the holiday shopping season that so many retailers depend on for a substantial portion of their annual revenues. Some borrowers have already started receiving notices from servicers about their payments resuming in the near future… [Extending the repayment pause] would bring both certainty and relief to the nation’s student loan borrowers. As the pandemic continues to wreak havoc, borrowers need to know they won’t be pushed over this cliff,” the groups wrote.
Consumer Groups Take on Facebook at the U.S. Supreme Court
As unwanted robocalls continue to invade the privacy of Americans and diminish the usefulness of cell phones, Facebook headed to court in an attempt to more narrowly define prohibitions on robocalling in order to nullify congressional efforts to protect consumers. CFA, along with our partners, National Consumer Law Center and Consumer Reports, submitted an amicus brief late last month in the case, Facebook v. Duguid.
When Congress enacted the Telephone Consumer Protection Act (TCPA) in 1991, it demonstrated its intent to protect consumers, businesses, and telecommunications systems from unwanted and intrusive calls by including a prior consent requirement. This requirement, which the advocates call the “linchpin of the TCPA,” permitted autodialed calls to cell phones, hospital emergency lines, and other protected lines only with the prior express consent of the receiving party (except in cases of emergency). This prior consent requirement puts the power in the hands of the person receiving the call, rather than the robocaller.
The Second, Sixth, and Ninth Circuit Courts have issued common-sense decisions finding that the TCPA’s definition of an auto-dialer includes systems that store numbers on a list and dial them. Facebook and its supporters, however, argue that the definition only includes dialers that dial random or sequentially generated numbers. But unless the caller is calling from a list, the caller has no way of ensuring that it is only calling people who have consented—as Congress intended.
”The facts are clear — if these calls can only legally be made with the recipients’ prior agreement, they can only be made to those people’s numbers, not to random numbers,” said Susan Grant, CFA Director of Consumer Protection and Privacy. “Facebook’s argument is not based on the statute or the clear intent of Congress and, if it is accepted, we’ll be flooded with unwanted and unstoppable autodialed calls.”
If the Court adopts the definition Facebook wants, autodialed calls and texts to cell phones and other protected lines will be virtually uncontrollable, the groups argue. Adopting Facebook’s definition would eliminate protections against unwanted calls for all non-telemarketing texts to all cell phones. Business cell phones would be entirely unprotected from all automated texts and from all automated calls that do not include a prerecorded voice. The primary safeguard against the constant invasion of privacy and threat to public safety—consent—would fall.
SEC Votes to Further Deregulate Securities Markets
The Securities and Exchange Commission (SEC) approved a package of rule changes earlier this month that dramatically expand the ability of companies to raise money in private markets where basic rules of transparency and fair play do not apply. The rules were rushed through on a 3-2 vote, with both Democratic Commissioners voting against the deregulatory changes.
Laws adopted in the wake of the 1929 stock market crash were designed to ensure that any company that wishes to sell its securities to members of the general public register with the SEC and disclose the essential facts necessary to value those securities. Other rule changes adopted since then are designed to ensure that retail investors get operate on a level playing field in the public markets, by guaranteeing, for example, that they get the best available price when they buy and sell publicly traded stocks, by ensuring they have access to the same material information as institutional investors, and by ensuring the disclosures companies provide are accurate.
The rule changes finalized by the SEC earlier this month are designed to make it easier for companies to evade these requirements and still sell their securities to financially unsophisticated retail investors. For example, the rule changes make it easier for companies to string together a series of private offerings in ways that previously would have violated the “integration doctrine” in order to avoid registration; eased restrictions on engaging in general solicitation in supposedly “private offerings;” and significantly increased the amounts that can be raised under several of the private offering exemptions.
“Today’s vote is evidence of an agency that has abandoned its investor protection mission and shirked its responsibility to protect both investors and the health and integrity of our capital markets,” said CFA Director of Investor Protection Barbara Roper in a press statement. “As usual, SEC Chairman Jay Clayton is promoting these rules as beneficial for small company capital formation. But, as he has with increasing frequency in recent months, Chairman Clayton chose to move forward with these rules without any evidence or meaningful analysis of their likely impact on either capital formation or investor protection,” she added. “With this vote, he cements his reputation as the most partisan, deregulatory, and anti-investor SEC chairman in recent history.”
Democratic SEC Commissioners Allison Herren Lee and Caroline Crenshaw both opposed the rules and issued strong statements voicing their dissent. “We greatly appreciate Commissioners Lee and Crenshaw for continuing to champion investor protection at an agency that has clearly lost sight of, or lost interest in, its central investor protection mission,” Roper said.
It is not clear whether the rule changes will ultimately go forward. “Certainly, we would hope and expect that these rules – along with other recent anti-investor actions by the SEC – would be put on hold or reversed as soon as leadership at the agency changes,” Roper said.