Payday/High-cost Loans

Congressional Resolution Would Rescind “Fake Lender” Rule That Allows Predatory Lenders’ to Evade State Interest Rate Limits

330+ Groups from All 50 States and D.C. Have Called on Congress to Overturn a Rule That Enables Triple-Digit Interest Rate Loans Across the Country

Washington D.C. – Consumer Federation of America applauds plans for Senators Chris Van Hollen (D-MD), Sherrod Brown (D-OH), and Congressman Chuy García (IL-4) to introduce Congressional Review Act resolutions to eliminate a Trump-era regulation that helps lenders charging 179% APR or more evade state- and voter-approved interest rate caps. The rushed “fake lender” rule took effect in December and was issued by the Office of the Comptroller of the Currency (OCC). The rule protects “rent-a-bank” schemes whereby predatory lenders (the true lender) launder their loans through a few rogue banks (the fake lender), which are exempt from state interest rate caps. The rule overrides 200 years’ worth of caselaw allowing courts to see through usury law evasions to the truth, and replaces it with a pro-evasion rule that looks only at the fine print on the loan agreement.

“We applaud Senator Van Hollen, Senator Brown, and Representative García for plans to introduce a resolution to overturn this dangerous rule,” said Rachel Gittleman, Financial Services Outreach Manager with Consumer Federation of America. “Predatory lenders prey on veterans, small businesses, and communities of color, luring them into harmful loans that strip these consumers of hard-earned capital, and these Congressional leaders are taking an important step towards stopping these lenders by overturning the “fake lender” rule.”

Earlier this week, CFA joined a broad coalition of more than 330 organizations representing all 50 states and the District of Columbia calling on Congress to overturn the “fake lender” rule, which threatens to “unleash predatory lending in all fifty states.” According to national polling, two-thirds of voters (66%) are concerned about the ability of high-cost lenders to arrange loans through banks at rates higher than the state laws allowed.

Predatory lenders charging 100% to 200% APR are already starting to push high-cost installment loans throughout the country that exceed the rates permitted under state law, and others, including payday lenders, have pilot projects going with plans to expand to states that do not allow their high-cost loans.

As was done more than a dozen times under President Trump, this Congress could use the Congressional Review Act (CRA) to rescind recently finalized regulations, including the OCC’s “fake lender” rule, with just a majority vote in both chambers, limited debate, no filibuster, and the president’s signature. The CRA of the OCC “fake lender” rule will be introduced by Senator Van Hollen (D-MD), Senator Sherrod Brown (D-OH), and Congressman Chuy García (IL-4) today, and these resolutions must be voted upon by a certain date, currently estimated between May 10 and May 21.

The coalition of signatories to the letter consists of 338 groups, including civil rights, community, consumer, faith, housing, labor, legal services, senior rights, small business, student lending, and veterans organizations representing all 50 states and the District of Columbia. 

A 2-page explanation of the “fake lender” rule is here, a brief explaining how these predatory lenders target veterans is here, and a “watch list” of predatory lenders evading state interest rate limits is here.

Contact: Rachel Gittleman, 609-571-5953