Feds Plan To Circumvent Predatory Lending Law. States Fight Back

SACRAMENTO – A new federal proposal would exempt payday and other high-cost lenders from state usury laws, allowing them to ignore state limits and set their own excessive interest rates. California is leading the fight against that new proposal.

Attorney General Xavier Becerra has been joined by a bipartisan coalition of 19 attorneys general who are opposing the Office of the Comptroller of the Currency’s (OCC) new proposal. Illinois Attorney General Kwame Raoul and New York Attorney General Letitia James are co-leading the states’ response.

Usury laws prevent predatory lenders from taking advantage of consumers by charging high interest rates on loans. California recently enacted a law capping interest rates for loans under $10,000. If finalized, the OCC’s proposal would allow predatory lenders to circumvent these caps through “rent-a-bank” schemes, in which banks act as lenders in name only, passing along their state law exemptions to non-bank payday lenders. These arrangements would allow lenders to charge consumers rates that far exceed the rates permissible under California’s new law.

“Predatory lenders have long taken advantage of California communities that are already struggling to get by,” said Attorney General Becerra. “We recently took an important step here to protect our communities by adopting new rate caps, and now the OCC is trying to create loopholes that benefit the payday lenders. The federal government should be fighting to stop these bad actors – not enabling them. We remain committed to upholding consumer protection laws that safeguard working families.”

States have long played a critical role in protecting residents from high-cost loans. While federal law exempts federally-regulated banks from certain state laws, states can continue to protect residents from predatory lenders such as payday, auto title, and installment lenders. Congress affirmed that role with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

However, the new regulations proposed by OCC would extend those federally-regulated bank exemptions to non-bank debt buyers such as payday lenders - a sharp reversal in policy and a deliberate attempt to work around state laws that target predatory lending.

In last year’s legislation, California limited interest rates at 36 percent for loans of up to $10,000. Despite that law several companies have already indicated they would use the OCC’s new proposals to pursue rent-a-bank arrangements to circumvent that law, enabling them to charge consumers interest rates far in above that 36 percent cap.

In their filing the multistate coalition argues that the OCC’s attempt to extend those federally-regulated bank exemptions to non-banks conflicts with both the National Bank Act and Dodd-Frank Act; exceeds the OCC’s statutory authority; and violates the Administrative Procedure Act.

Joining Attorneys General Becerra, Raoul, and James in filing the comment letter today are the attorneys general of Colorado, Hawaii, Iowa, Maryland, Massachusetts, Michigan, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, South Dakota, Virginia, Washington, Wisconsin, and the District of Columbia.

A copy of the comment letter can be read in full at: https://oag.ca.gov/system/files/attachments/press-docs/Multistate%20comment%20--%20OCC%20Madden%20%28FINAL%29.pdf