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CRL Lauds State Attorneys General For Challenging OCC Rule That Encourages Abusive Rent-A-Bank Lending Schemes

Wednesday, July 29, 2020
Lisa Stifler

WASHINGTON, D.C. - Today, State Attorneys General from California, Illinois, and New York filed a lawsuit challenging the Office of the Comptroller of the Currency’s (OCC) recently announced final rule that encourages online nonbank lenders to launder their loans through banks so they can offer high-cost triple-digit loans in states where such loans are illegal. The rule was strongly opposed by a bipartisan group of attorneys general as well as by numerous community, consumer, civil rights, faith and small business organizations. At least 45 states and the District of Columbia (D.C.) cap rates on many installment loans, and 16 states plus D.C. have rate caps of 36% or less for payday and car title loans.

Center for Responsible Lending Director of State Policy Lisa Stifler released the following statement:

We thank Attorneys General Xavier Becerra, Kwame Raoul, and Letitia James for challenging a rule that encourages predatory lending via rent-a-bank schemes and makes a dangerous lending environment for borrowers even worse. The last thing families need during this economic crisis are more predatory, high-interest loans, but that is what this rule would facilitate. State interest rate caps are the most effective way to protect consumers from abusive lending practices. We will continue to support any state that stands up against loan laundering schemes that push families into spiraling debt traps.


High-cost online lenders, including Opploans, Elevate’s Elastic and Rise, Enova’sNetCredit, LoanMart’s Choice Cash, EasyPay, and Personify Financial, launder their loans through banks such as Republic Bank & Trust and FinWise Bank in order to skirt state laws so they can pedal predatory triple-digit interest rate loans to consumers. Most of the rent-a-banks are FDIC-supervised. World Business Lenders uses OCC-supervised Axos Bank to make predatory loans to small businesses.

Banks are generally exempt from state rate caps that cover non-bank payday, car-title, installment, and other online lenders. For many years, high-cost lenders have attempted to take advantage of this exemption by entering into rent-a-bank schemes by which they launder their loans through banks and then purchase back the loans or receivables and continue to charge high rates that would be illegal for the non-bank lenders to charge directly. In the early 2000s, federal bank regulators shut down rent-a-bank arrangements.

The new OCC rule will encourage a resumption of these schemes. The rule states that when a bank sells, assigns, or otherwise transfers a loan, interest permissible prior to the transfer continues to be permissible following the transfer.

Earlier this month, the OCC doubled-down on its stance and proposed a so-called “true lender” rule that will bless fraudulent “rent-a-bank” schemes where a non-bank lender forms a superficial partnership with a bank in order to charge interest rates beyond what state law allows non-banks to charge. The deadline for comments to the OCC on this proposed “true lender” rule is September 3, 2020.


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