Published: January 2020

OCC proposal could greenlight predatory lending schemes

Consumer Action joined a coalition of more than 100 organizations in opposing a proposed rule from the Office of the Comptroller of the Currency (OCC) that would facilitate predatory loans. Specifically, the proposed rule would make it easier for payday and other high-cost lenders to use banks as a fig leaf to offer predatory loans at interest rates of 100 percent APR or higher that are prohibited under state rate cap laws. This scheme is known as “rent-a-bank” or “rent-a-charter.”

The Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) have proposed a rule on “federal interest rates” that threatens to eviscerate the ability of states around the country to limit interest rates to protect their residents. The proposal could encourage “rent-a-bank” schemes where payday and other high-cost lenders launder their loans through banks in order to make loans up to 160% APR in states where those high rates are illegal.

The Office of the Comptroller of the Currency’s (OCC) proposal would embolden these rent-a-bank schemes by placing state rate caps on predatory loans in jeopardy. Under traditional application of state usury laws, courts look beyond the form to the substance when a transaction is designed to avoid application of a state’s usury laws. Yet the OCC’s proposal flatly provides that state-regulated entities may charge usurious rates when they purchase loans originated by a bank.

Lead Organization

National Consumer Law Center (NCLC)

Other Organizations

Allied Progress | Americans for Financial Reform Education Fund | Asian Law Alliance (California) | The Bell Policy Center (Colorado) | Center for Economic Integrity | Center for Responsible Lending | Coalition for Humane Immigrant Rights (CHIRLA) | Community Economic Development Association of Michigan | Community Legal Services, Inc. of Philadelphia | Consumer Action | Consumer Federation of America | Consumer Justice Law Center LLC (Wisconsin) | Consumer Reports | Consumers for Auto Reliability and Safety (California) | Demos | Faith in Action | Heartland Alliance (Illinois) | Heartland Center for Jobs and Freedom (Missouri) | HOPE for All: Helping Others Prosper Economically (California) | Housing & Economic Rights Advocates (California) | Interfaith Center on Corporate Responsibility | Leadership Conference on Civil and Human Rights | Legal Aid Society of the District of Columbia | Legal Services of New Jersey | Main Street Alliance | Metropolitan Christian Council Detroit Windsor | NAACP | NAACP CO-MT-WY State Conference | National Association of Consumer Advocates | National Baptist Convention of America | National Consumer Law Center (on behalf of its low income clients) | National Fair Housing Alliance | NCPIRG | Neighborhood Partnerships (Oregon) | New Economics for Women (California) | New Economy Project (New York) | Small Business Majority | Statewide Poverty Action Network (Washington) | The Financial Clinic | U.S. PIRG | Wesley Memorial UMC (Virginia)

More Information

To read the letter in full, please click here.

For more information, please visit NCLC's website.

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