Bank regulator’s plan would facilitate triple-digit interest rate loans that violate state rate cap laws

WASHINGTON, D.C. – Today, the Office of the Comptroller of the Currency (OCC) proposed a so-called “true lender” rule that would facilitate 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.

Center for Responsible Lending (CRL) Director of State Policy Lisa Stifler issued the following statement:

The last thing we need now are more predatory, high-interest loans, but that is what this proposal would facilitate. It is unfortunate that the OCC is putting its stamp of approval on fraudulent schemes, whereby lenders ‘rent a bank’ to charge rates in violation of state interest cap laws. The OCC should rescind this proposal and instead focus on stopping these scams.

Additional Background

The deadline for comments to the OCC on this proposed rule is September 3, 2020. The FDIC has previously signaled interest in issuing its own proposed “true lender” rule.

The vast majority of states and the District of Columbia have some form of a rate cap on installment loans to protect their residents from exploitative lending. Banks are generally exempted from state usury laws through their charters, which non-banks are seeking to unlawfully piggyback off these deceptive partnerships.

The OCC and the Federal Deposit Insurance Corporation (FDIC) are turning a blind eye to several ongoing rent-a-bank schemes, some of which involve loans with annual interest rates around 100% or higher.

Today’s action is but one way the OCC is actively encouraging the proliferation of these unlawful arrangements. In May and June respectively, the OCC and FDIC issued final rules that completely misapplied the idea of “valid-when-made” to say that these invalid partnerships allow for the transfer of interest rate preemption powers.

Courts have consistently ruled against rent-a-banks schemes when states have challenged them, looking to the “predominant economic interest” of the loan. The OCC is unraveling this long-standing doctrine that protects against predatory loan scams.


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