WASHINGTON–A coalition of consumer groups said a proposal by OCC would allow “predatory lenders to do an end-run around state interest rate caps, exposing people to high-cost loans with minimal consumer protections.”
In a comment letter, the 13 national consumer and civil rights groups said the proposed rule would facilitate fraudulent predatory “rent-a-bank” schemes where a non-bank lender launders a loan through a bank (which is not subject to state rate caps) in order to charge interest rates beyond what state law allows.
“The OCC’s proposal provides that a bank ‘makes’ the loan and thus is the lender -- so that state interest rate laws do not apply -- so long as the bank’s name is on the loan agreement or the bank funds the loan,” the groups said in the letter. “This rule would prohibit courts from looking behind the fine print form to the truth about which party is running the loan program and is the ‘true lender’.”
The groups said Brian P. Brooks, the acting Comptroller of the Currency, has said “he intends for this rule to shelter rent-a-bank arrangements from litigation.” The groups noted that just days before Brooks’ comments, the District of Columbia attorney general sued a high-rate rent-a-bank lender, Elevate, for violating state rate caps; and California just launched an investigation into LoanMart, another rent-a-bank lender. Currently, 45 states and D.C. have interest rate caps on at least some installment loans to protect residents from high-cost predatory lending, the group said.
OCC Urged to ‘Abandon’ Proposal
The groups urged the OCC to abandon its proposal in its comment letter to the OCC.
“The proposal would eliminate state interest rate limits for nonbank predatory lenders in every state as long as a bank’s name is in the fine print – nothing more – taking us back to the days of the early 2000s when payday lenders used rent-a-bank schemes to evade state laws,” the groups said. “States would lose the power they have had since the time of the American Revolution to limit interest rates to prevent predatory lending.
“The OCC is asking us to trust that it will not allow predatory lending,” the groups continued. “But when the OCC is going out of its way to support the right of a predatory small business lender to charge 120% APR, and is doing nothing to stop a payday lender from using an OCC-regulated bank to launder 179% APR installment loans, a naïve trust is no substitute for state interest rate limits…
“The timing of the OCC’s embrace of predatory lenders could not be worse. We are in the midst of an unprecedented health crisis and a severe economic crisis…We are, at the same time, at a pivotal moment in our nation’s reckoning with its history of structural racism.… [I]t is difficult to imagine a more inappropriate time to disrupt longstanding safeguards in place since the founding of this country that have played a fundamental role in protecting consumers from predatory financial practices.”
The Signatories
The letter was signed by the Center for Responsible Lending, National Consumer Law Center (on behalf of its low income clients), Americans for Financial Reform Education Fund, Consumer Action, Consumer Federation of America, the Leadership Conference on Civil and Human Rights, NAACP, National Association of Consumer Advocates, National Association for Latino Community Asset Builders, National Coalition for Asian Pacific American Community Development (National CAPACD), Public Citizen, UnidosUS, and U.S. PIRG.