Charlene Crowell /TriceEdneyWire.com – (Source: www.capitaloutlook.com) – Last October, in the midst of the COVID-19 pandemic and related economic downturns, a key federal financial regulator passed a rule that blesses a “bank lease” scheme where predatory lenders partner with banks to evade government interest restrictions. rates.
The Office of the Comptroller (OCC), known as the “true creditor” rule, has given the green light to predatory creditors. It effectively repeals a number of laws in nearly every state that have been enacted to terminate inappropriate pre-payday loans, car ownership, and installment loans with explosive interest rates in excess of 100 percent.
The rule, effective at the end of December 2020, simplifies the scheme whereby lenders, prior to salary payments and large installments, pay banks a fee to use their name and charter to evade state interest rate laws by requiring the bank to be exempted from those laws. for yourself.
Ironically, the OCC’s mission is to ensure that national banks and federal savings associations provide fair access to financial services, treat clients fairly, and comply with applicable laws and regulations. However, 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 “fake lender,” since the real lender is the predatory non-bank lender, not the bank.
The reckless regulation of the OCC has also triggered a flood of consumer advocacy from various spheres of influence, but allied in opposition.
For example, 138 academics from 44 states and the District of Columbia have filed their opposition to Rent-A-Bank and include law professors from prestigious institutions such as Cornell, Columbia, Georgetown, Harvard, Howard, Notre Dame, and Northwest. In a letter dated April 20, the professors, in particular, wrote: “If this Rule is not abolished, it will be a disaster for countless Americans who are trying to recover from this time of unprecedented medical 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 downturn caused and exacerbated by COVID-19, the OCC is seeking to expand the availability of exploitative loans that lure borrowers into an endless cycle of debt,” wrote attorneys general. “We urge Congress to use its powers under the Congressional Review Act to invalidate the OCC’s True Creditor Rule and protect the right of sovereign states and the ability of an independent judiciary to protect our citizens from bank lease schemes designed to operate. end bypasses critical consumer protection measures. “
The Congress Review Act (CRA) allows rules to be overturned by a simple majority vote in both the House of Representatives and the Senate before they are submitted to the President for signature. In late March, Illinois spokesman Jesus “Chui” Garcia and Maryland Senator Chris Van Hollen presented joint resolutions calling for congressional disapproval under the CRA. Each is awaiting a bottom vote, which is expected to take place in mid to late May, to meet the statutory deadline for action within its 60 legislative days.
Other organizations actively involved in the regulatory change include: Conference of State Bank Supervisors, National Credit Union Association, Baptist Cooperative Society, National Baptist Convention, USA, Inc., National Association of Federal Credit Unions, and Veterans Success Education “.
Consumer advocacy to reverse the “fake creditor” rule reached its climax on April 28 when the US Senate Banking, Housing and Urban Affairs Committee called a hearing. The opening statement by its chairman, Senator Sherrod Brown, set the tone and purpose of the forum.
“Like all of us, one question arises here: which side are you on?” said Senator Brown. “You can side with online lenders who brag about their creativity, avoid the law and find new ways to hunt down workers and their families. Or we can stand up for families and small businesses, state attorneys general and state legislatures who have said enough and are trying to protect themselves and their governments from predatory lending schemes. ”
The testimony at the hearing clarified the issues as well as the choices facing Congress.
The Rev. Frederick K. Haynes III, Senior Pastor of the Dallas Western Baptist Friendship Church, represented not only his congregation of 12,000 members, but also Faith for Fair Credit, a coalition of Christian denominations that believe financial practice respects human dignity.
“For decades, banks have used cards to deny loans to communities of color, and now they are using cards to serve the moneylenders of those same communities,” Haynes said. “That the OCC will establish a rule giving predatory lenders the ability to charge 200-400 percent or more, even in states that have fought hard to stop this predation with a 36 percent interest rate cap, is really obscene, and since we have placed it would be in my community of faith, sinful and demonic.
“We ask, finally, your strong and active support for the Congressional Revision Act, which repeals the true OCC rule on creditors. And remember the wisdom of Thomas Piketty, who warns: “When private interests exceed those of society, we cease to be a republic or a democracy.”
Lisa Stifler, director of public policy at the Center for Responsible Lending (CRL), analyzed her decade of consumer advocacy, identifying which lenders benefit from the rule and their actions.
“How the OCC rule will work is already clear because the banks regulated by the OCC provide some of the most predatory lending on the market,” Stifler said. “For over a year, Stride Bank has assisted the lender of CURO payday loans in installments of up to $ 5,000 at an annual interest rate of 179%. This overpriced loan is illegal in almost every state. However, the OCC rule invites predatory lenders to evade state laws by paying the bank to put their name on documents. ”
“Another OCC regulated bank, Axos Bank, is surrendering its name and charter to the predatory small business lender World Business Lenders (WBL),” Stifler continued. “WBL loans amount to tens and even hundreds of thousands of dollars, and the interest rate reaches 268 percent. These loans, often secured by the borrower’s personal home, result in small business owners losing their homes. ”
North Carolina Attorney General Josh Stein shared his state’s experience with Rent-A-Bank before warning senators of impending doom that would befall the nation if timely action was not taken.
“The OCC, through the acting financial controller, not only rammed the Fictitious Creditors Rule a week before the 2020 elections, but also illegally,” Stein said. “The OCC has radically exceeded its statutory authority in issuing the rule. While the OCC claims to interpret parts of the three federal banking laws, none of them authorize bank lease schemes or empower the OCC to pre-empt the true creditor doctrine of state law.
“This rule, if left unchanged, gives predatory lenders, who violate state laws that limit interest rates and consumer loan fees, a card to escape jail,” Stein concluded.
Perhaps the most summary of the day was by Chairman Brown.
“Some of the issues that are put before this committee are complex, they divide people, there are sharp nuances that need to be considered,” said the Ohio senator. “This is not one of them. It’s simple: let’s stop predatory lenders instead of encouraging them. “
Charlene Crowell is a senior fellow at the Center for Responsible Lending. She can be contacted at Charlene.email@example.com.