Washington D.C. – Yesterday, the Consumer Federation of America joined numerous advocacy organizations from across the country in submitting comment letters in vigorous opposition to a proposed rule from the Office of the Comptroller of the Currency (OCC). This proposed rule would encourage the spread of predatory loans by gutting the “true lender” doctrine that courts use to detect usury evasions, gravely undermining state interest rate caps created to protect residents from high-cost loans. The OCC proposal would facilitate harmful, predatory “rent-a-bank” schemes where a non-bank lender launders its loan through a bank, which is exempt from state rate caps, in order to charge interest rates in excess of what a state legally allows a non-bank to charge. CFA urged the OCC to withdraw its proposal in individual comments and in a separate joint comment letter with 12 consumer and civil rights groups. CFA also joined a shorter comment letter submitted by more than 100 community based organizations across the nation.
“The OCC’s proposed rule would eliminate state regulators’ key enforcement tool to tamp down on predatory lending and consequently, eviscerate the power of state governments to independently regulate interest rate limits—an authority that has existed since the American Revolution,” said Rachel Weintraub, Legislative Director and General Counsel with CFA.
“This proposed rule would unleash predatory lending in all 50 states, including the 45 states that have enacted interest rate caps to protect their residents from exploitive, high-cost loans,” said Rachel Gittleman, Financial Services Outreach Manager with CFA. “Predatory lenders prey on the financially vulnerable and target communities of color, stripping these consumers of hard-earned capital, widening the racial wealth gap, and further facilitating financial exclusion.”
“Coupled with recent acts by other financial regulators, including the Consumer Financial Protection Bureau and the Federal Deposit Insurance Commission, this is another blatant action that emboldens predatory lenders in the midst of the financial crisis and ongoing pandemic,” continued Gittleman. “The OCC’s mission is to ensure a safe and sound banking system–but this proposal would do the opposite, paving the way for unfair, predatory credit at a time when consumers need more protection, not less.”
“In light of these numerous deregulatory actions, Congress must act to protect consumers from high-cost lending schemes,” stated Weintraub. “Congress must pass H.R. 5050/S. 2833, the Veterans and Consumers Fair Credit Act, to permanently cap interest rates at 36% for all consumers,” she concluded.
Forty-five states, as well as D.C., have interest rate caps on many types of small loans; however, banks are generally exempt from these state rate caps. Non-bank lenders enter into rent-a-bank schemes where they launder loans through banks to be able to charge exorbitant interest rates, exceeding state usury caps. The true lender doctrine has long been used by courts to stop payday and other non-bank lenders from using banks to evade state interest rates, but the OCC’s proposed rule would overturn this doctrine. Earlier this summer, Attorney General Racine filed a lawsuit against Elevate for charging interest rates between 99 and 251%, arguing that Elevate is the true lender, as they fund the loan, reap the benefits, and take on the risk of the loan.