The Office of the Comptroller of the Currency’s (OCC) “fake lender” rule is an existential threat to state interest rate limits that protect consumers from predatory lending. Since the American Revolution, states have limited interest rates to stop predatory lending. Forty-five states and the District of Columbia (DC) have interest rate caps on at least some installment loans, depending on the size. These laws are extremely popular. In recent years, Arizona, Montana, South Dakota, Colorado, and Nebraska have passed ballot initiatives, with overwhelming support, establishing or reaffirming rate caps at or about 36%. Nebraska voters passed its measure last fall with 83% of the vote.
The OCC claims that its “fake lender” Rule will benefit consumers and lenders. However, the OCC rule is being used in court right now to defend a $67,000 loan to a restaurant owner at 268% APR that violates state usury law. The predatory lender, World Business Lenders (WBL), is laundering loans through OCC-supervised bank Axos. In addition to the abusive interest rate, small business owners are facing foreclosure proceedings by WBL because the loan is often secured by their home.
Another OCC-regulated bank, Stride Bank, has, for over a year, been helping the payday lender CURO (Speedy Cash) pilot online installment loans that can go as high as 130 - 179% APR to help CURO “expand geographically … where we don’t operate right now.” It conveniently stopped accepting applications this month.
The OCC’s authority over banks is clear, and this rule was not needed to clarify it. The “fake lender” rule addresses the interest rate charged by lenders that are not banks by attempting to claim it is a bank loan. The rule has no impact on the OCC’s ability to supervise and take enforcement actions with respect to banks. Repealing the rule won’t affect that authority. Moreover, the OCC’s authority to protect the safety and soundness of banks and to protect consumers will not be affected by repealing the rule through a Congressional Review Act (CRA); rather, the CRA will only prevent a “substantially the same” effort from the OCC to protect predatory lenders that are evading state usury laws.