By Charlene Crowell, Center for Responsible Lending

Last October, during the throes of the COVID-19 pandemic and its economic downturns, a key federal financial regulator passed a rule that blesses the “rent-a-bank” system where predatory lenders partner with banks to bypass state interest rate limits.

Known as the “real lender” rule, the Office of the Comptroller of the Currency (OCC) has given the green light to predatory lenders. It actually replaces a series of state laws in nearly every state passed to end abusive payday, car title and installment loans with explosive interest rates of over 100%.

Coming into effect at the end of December 2020, the rule facilitates a system in which payday and installment lenders pay a fee to banks for using their name and charter to circumvent rate laws. state interest in claiming the bank’s exemption from these laws for itself.

Ironically, the mission of the OCC is to ensure that national banks and federal savings associations provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations. Yet this OCC regulation helps predatory lenders evade state laws and harms consumers in direct violation of the agency’s stated mission.

To more accurately describe how bank charters were used to sell predatory loans, consumer advocates call the rule change a “ bogus lender ” because the real lender is the predatory non-bank lender – not a bank.

OCC’s misguided regulation has also sparked a swarm of consumer advocacy from various spheres of influence, but united in opposition.

For example, 138 academics from 44 states and the District of Columbia have expressed opposition to Rent-A-Bank and include 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 In a letter dated April 20, the professors wrote in part: “If this rule is not rescinded, it will be a disaster for countless Americans as they try to recover from this period of unprecedented health and economic disaster. . ”

A day later, on April 21, a bipartisan group of 25 state attorneys general also called for corrective action.

“During an unprecedented economic recession, brought on and exacerbated by Covid-19, the OCC seeks to expand the availability of exploitative loans that trap borrowers in a never-ending cycle of debt,” the attorneys general wrote. “We urge Congress to use its powers under the Congressional Review Act to overturn the OCC’s true lender rule and protect the right of sovereign states, as well as the ability of an independent judiciary, to protect our citizens. against bank rental systems designed to work. the end revolves around essential consumer protections. ”

The Congressional Review Act (CRA) allows rules to be repealed by simple majority votes in both the House and Senate before going to the president for signature. At the end of March, Representative Jesus “Chuy” García of Illinois and Senator Chris Van Hollen of Maryland presented joint resolutions providing for the disapproval of Congress under the CRA. Everyone is waiting for the votes on the ground which should take place from mid-May to the end of May to comply with the deadline for action of the law within the 60 legislative days allotted to him.

Other organizations active in the regulatory reversal effort include: 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 overturn the “bogus lender” rule peaked on April 28 when a hearing was called by the US Senate’s Committee on Banking, Housing, and Urban Affairs. Its chairman, Senator Sherrod Brown, set the tone and purpose of the forum.

“Like so many things we do, it comes down to a question: Which side are you on?” Senator Brown asked. “You can be on the side of online payday lenders who brag about their creativity by avoiding the law and finding new ways to prey on workers and their families. Or we can stand up for families and small businesses, as well as state attorneys general and state legislatures that have said “enough” and are trying to protect themselves and their states from predatory lending programs. ”

The testimony of witnesses at the hearing highlighted the concerns as well as the choices before Congress.

The Rev. Dr. Frederick C. Haynes III, senior pastor of Friendship West Baptist Church in Dallas, represented not only his congregation of 12,000 members, but also Faith for Just Lending, a coalition of Christian denominations who believe in fair financial practices and righteous respect dignity.

“For decades, banks have used cards to deny loans to communities of color and now they are using cards to serve as loan sharks from those same communities,” Reverend Dr. Haynes testified. “That the OCC establish a rule giving predatory lenders a way to charge interest of 200-400% and more, even in states that have fought to stop this predation with an interest rate cap of 36% – it is indeed obscene, and as we would put it in my community of faith, sinful and demonic.

“We ask, finally, for your strong and proactive support for the congressional review act that will overturn the true OCC lender rule,” he continued, “and remember the wisdom of Thomas Piketty who warns: “When private interests exceed the interests of the public, we cease to be a republic or a democracy.”

Lisa Stifler, director of state policy at the Center for Responsible Lending (CRL), reviewed her consumer advocacy for ten years, indicated which lenders benefit from the rule and their actions.

“How the OCC rule works is already clear, as OCC-regulated banks allow some of the most predatory loans in the market,” Stifler noted. “For over a year, Stride Bank has helped payday lender CURO pilot installment loans of up to $ 5,000 with rates as high as 179% Annual Percentage (APR). This exorbitantly priced loan is illegal in almost every state. Still, the OCC rule calls on predatory lenders to evade state laws by paying a bank to put their name on paperwork. ”

“Another bank regulated by the OCC, Axos Bank, leases its name and charter to the predatory small business lender World Business Lenders (WBL),” Stifler continued. “WBL loans range in the tens – even hundreds of thousands of dollars – and carry rates as high as 268%. Often secured by the borrower’s personal residence, these loans cause small business owners to lose their homes. ”

North Carolina Attorney General Josh Stein shared his state’s experience with Rent-A-Bank before warning senators of the looming catastrophe that would befall the country if swift action was not taken.

“The BCC, through the Acting Controller, not only broke the bogus lender rule a week before the 2020 election, but it did so illegally,” said AG Stein. “The OCC radically exceeded its statutory authority by enacting the rule. Although the OCC purports to interpret parts of three federal banking laws, none of them authorize bank leasing systems or give the OCC the power to prejudge the true lender doctrine of the law of lender. ‘State.

“This rule, if not reversed, provides a release card for predatory lenders who violate state laws limiting interest rates and fees on consumer loans,” Stein concluded.

Perhaps the shortest summary of the day came from President Brown.

“Some issues before the committee are complicated, they divide people, there are thorny nuances to consider,” noted the senator from Ohio. “He’s not one of them. It’s simple: let’s stop predatory lenders instead of encouraging them. ”

We hope it will be that simple when senators on both sides of the aisle face a vote and have the opportunity to stand up for consumers.