California Department of Justice joins multi-state coalition to urge Congress to repeal OCC rule that encourages predatory lending
SACRAMENTO – The California Department of Justice joined a coalition of 25 attorneys general today in a letter asking Congress to strike down an Office of the Comptroller of the Currency (OCC) rule that encourages predatory lending by non-bank lenders. The OCC regulates domestic banks, which are generally not bound by state interest rate caps. True Lender Rule Released in October 2020 Allows Payday Lenders, Auto Title Lenders, and Other Non-Bank Entities to Bypass State Limits on Loan Interest Rates Through Fake Partnerships “bank hire” with national banks. The California Department of Justice has a multi-state lawsuit pending against the OCC’s “True Lender Rule”, but today’s letter urges Congress to use its powers under the Congressional Review Act to overturn the rule as the most effective way to prevent predatory loan abuse and damage to consumers. .
In bank leasing systems, a non-bank lender seeks to circumvent government interest rate ceilings by having a bank put their name on loan documents or initially finance a loan. The bank acts as a simple middleman, transferring funds to borrowers in accordance with the instructions of the non-bank lender, and then “selling” the loan back to the non-bank lender. Non-bank lenders engage in these bank leasing schemes to bypass state interest rate caps and impose exorbitant interest rates on borrowers in violation of state laws.
To detect and prevent these sham loan arrangements, courts have traditionally relied on the “true lender doctrine,” which states that the true lender of a loan is the entity that bears the risk and has a financial interest in it. this one. If a bank is the name-only lender and the non-bank is the true lender, the true lender doctrine subjects the loan to government interest rate caps. The OCC’s True Lender Rule forgoes the true lender doctrine and instead recognizes a national bank as the “true lender” if its name appears on loan documents or if it held the funds, even briefly, before it. they are not sent to the borrower. While California has a 36 percent interest rate cap on consumer loans under $ 10,000, for example, the OCC’s true lender rule allows for bank leasing schemes that increase bank loans. interest rate at 100% or more.
Letter to Congress Says OCC’s True Lender Rule “would sanction high-cost loan programs aimed at escaping” state interest rate caps and “would be exploited by lenders seeking to circumvent those caps. interest rates and would invite, indeed, welcome predatory consumer lending partnerships between banks and lightly regulated non-depository lenders. “The letter urges Congress to repeal the OCC’s true lender rule and to protect the rights of states “to protect their citizens from financial abuse”.
In signing the letter, the California Department of Justice joins the Attorneys General of Illinois, Arkansas, Colorado, Connecticut, Hawaii, Iowa, Maine, Maryland, Massachusetts , Michigan, Minnesota, Nebraska, Nevada, New Jersey, New York, North Carolina and Oregon. , Pennsylvania, Rhode Island, South Dakota, Vermont, Virginia, Wisconsin and the District of Columbia.
A copy of the letter is available here.