Last October, amid the turmoil of the COVID-19 pandemic and its spreading economic downturn, a key federal financial regulator passed a rule blessing the “Rent-a-Bank” program, in which predatory lenders work with banks to circumvent state interest rate limits.
Known as the “True Lender” rule, the Office of the Comptroller of the Currency (OCC) gave predatory lenders the go-ahead. It effectively overrides a number of laws that have been enacted in almost every state to end improper payday, auto title, and installment loans with explosive interest rates in excess of 100 percent.
The rule goes into effect in late December 2020 and eases a system whereby payday and high-priced installment lenders pay fees to banks for using their name and articles of association to circumvent state interest laws by exempting the bank from those laws for themselves assert.
Ironically, the OCC’s mission is to ensure that national banks and federal savings banks provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations. Yet this OCC scheme helps predatory lenders evade state laws and harms consumers if it directly goes against the agency’s stated mission.
To describe in more detail how bank charter was used to sell robbery loans, consumer advocates refer to the rule change as “fake lender,” as the real lender is the non-bank predatory lender – not a bank.
The unwise regulation of the OCC has also unleashed a swarm of consumer interests from diverse spheres of influence, but united in opposition.
For example, 138 academics from 44 states and the District of Columbia have registered their opposition to Rent-A-Bank, including law professors from prestigious institutions such as Cornell, Columbia, Georgetown, Harvard, Howard, Notre Dame and Northwestern. In a letter dated April 20, the professors wrote in part: “If this rule is not reversed, it will spell disaster for countless Americans trying to recover from this time of unprecedented health and economic disaster.”
A day later, on April 21, a bipartisan group of 25 attorneys general also called for corrective action.
“During an unprecedented economic downturn triggered and exacerbated by COVID-19, the OCC is seeking to expand the availability of exploitative credit that keeps borrowers trapped in a never-ending debt cycle,” the attorney general wrote. “We urge Congress to use its powers under the Congressional Review Act to invalidate the OCC’s True Lender Rule and protect the rights of sovereign states and the ability of an independent judiciary to protect our citizens from rent-a- Protecting bank systems that are supposed to work end up running around the essential consumer protection. “
The Congressional Review Act (CRA) allows rules to be repealed by simple majority in both the House and Senate before they are presented to the President for signature. In late March, Illinois Representative Jesus “Chuy” García and Maryland Senator Chris Van Hollen tabled joint resolutions calling for CRA congressional disapproval. Everyone is waiting for the votes in the plenary, which is expected to take place in the middle to the end of May, in order to comply with the law’s deadline for action within the allotted 60 legislative days.
Other organizations active in reversing regulation include the Conference of State Bank Supervisors, Credit Union National Association, Cooperative Baptist Fellowship, National Baptist Convention, USA, Inc., National Association of Federal Credit Unions, and Veterans Education Success.
Consumer advocacy to repeal the “fake lender” rule peaked on April 28 when the Senate’s Banking, Housing and Urban Affairs Committee convened a hearing. Chairman Sen. Sherrod Brown’s opening statement set the tone and purpose of the forum.
“Like so much of what we do, this comes back to one question: Whose side are you on?” Said Senator Brown. “You can side with online payday lenders who brag about their creativity in getting around the law and finding new ways to exploit workers and their families. Or we can stand up for families and small businesses and the attorneys general and state legislatures that have said ‘enough’ and are trying to protect themselves and their states from predatory lending systems. “
Testimony at the hearing highlighted the concerns as well as the decisions made before Congress.
Rev. Frederick C. Haynes III, senior pastor of the Friendship West Baptist Church in Dallas, represented not only its 12,000-member congregation, but also Faith for Just Lending, a coalition of Christian denominations that believe that fair and just financial practices are Respect human dignity.
“For decades, banks have used cards to deny credit to color communities, and now they are using cards to serve as those communities’ loan sharks,” Haynes said. “That the OCC would make a rule that would give predatory lenders the ability to charge 200-400 percent interest and more, even in states that have fought hard to stop these raids with an interest rate cap of 36 percent – that’s in.” indeed obscene, and how do we? would put it in my denomination, sinful and demonic.
“Finally, we ask for your strong and proactive support for the Congressional Review Act, which will overturn the true lender rule of the OCC. And remember the wisdom of Thomas Piketty who warns: ‘When private interests outweigh the public interest, we cease to be a republic or a democracy.’ “
Lisa Stifler, State Policy Director at the Center for Responsible Lending (CRL) reviewed her decades of consumer advocacy and looked at which lenders benefit from the rule and its measures.
“How the OCC rule will work is already clear, as OCC-regulated banks enable some of the most predatory loans on the market,” said Stifler. “For over a year, Stride Bank has been helping payday lender CURO with pilot installment loans of up to $ 5,000 at rates of up to 179 percent APR. This outrageously expensive loan is illegal in almost every state. However, the OCC rule tells predatory lenders to circumvent state laws by paying a bank to write their name on the paperwork. “
“Another OCC-regulated bank, Axos Bank, is leasing its name and charter to the predatory small business lender World Business Lenders (WBL),” Stifler continued. “WBL loans are in the tens – even hundreds of thousands of dollars – and carry interest rates of up to 268 percent. These loans are often backed by the borrower’s personal residence and result in small business owners losing their homes. “
North Carolina Attorney General Josh Stein shared his state’s experience with Rent-A-Bank before warning senators of the impending doom that would hit the nation if action was not taken in a timely manner.
“With the Acting Comptroller, the OCC not only enforced the Fake Lender Rule a week before the 2020 elections, but also illegally” said Stein. “The OCC has radically exceeded its legal powers in enacting the rule. Although the OCC pretends to interpret parts of three Bundesbank laws, none of them authorizes Rent-a-Bank systems or empowers the OCC to anticipate the true lender doctrine of the state law. “
“If this rule is not reversed, it will offer predatory lenders who violate state laws limiting interest rates and charges on consumer credit a card to free the prison,” Stein concluded.
Perhaps the most succinct summary of the day came from Chairman Brown.
“Some of the issues that come before this committee are complex, they divide people, there are thorny nuances that need to be considered,” said the Ohio Senator. “It’s not one of them. It’s simple: let’s stop predatory lenders instead of encouraging them. “
Charlene Crowell is a Senior Fellow of the Center for Responsible Lending. She can be reached at [email protected]