By Manuel Tovar, August 02 – Hispanic Solutions Group
Last October, during the throes of the COVID-19 pandemic and its continuing economic recessions, a key federal financial regulator adopted a “bank” blessing rule in which predatory lenders partner with banks to evade credit limits. state interest rates.
Known as the “true lender” rule, the Office of the Comptroller of the Currency (OCC) gave the green light to predatory lenders. In effect, it nullifies a series of laws in almost every state enacted to end predatory payday loans, car title loans, and installments with explosive interest rates of more than 100%.
Going into effect at the end of December 2020, the rule facilitates a scheme whereby installment and high-cost lenders pay fees to banks for the use of their name and statute to circumvent state interest rate laws. by claiming the bank’s exemption from those laws for himself.
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 statutes were used to sell predatory loans, consumer advocates refer to the rule change as a “bogus lender,” since the real lender is the predatory non-bank lender, not a bank.
The misguided regulation of the OCC has also unleashed a swarm of consumer advocacy from various spheres of influence, but united in opposition. For example, 138 academics in 44 states and the District of Columbia registered their opposition to a financial institution, and they include law professors from prestigious institutions. In an April 20 letter, the professors wrote in part: “If this rule is not broken, it will spell disaster for untold numbers of Americans who are trying to recover from this time of unprecedented health and economic disaster.”
A day later, on April 21, a bipartisan group of 25 state attorneys general also urged corrective action.“During an unprecedented economic recession, triggered and exacerbated by COVID-19, the OCC seeks to expand the availability of working loans that trap borrowers in a never-ending cycle of debt,” wrote the attorneys general. “We urge Congress to use its powers under the Congressional Review Act to invalidate the OCC’s True Lender Rule and safeguard the right of sovereign states, and the ability of an independent judiciary, to protect our citizens from the Bank rental schemes designed to function end up around essential consumer protections. “
The Congressional Review Act (CRA) allows rules to be overridden by simple majority votes in both the House and Senate before going to the president for signature.In late March, Illinois Representative Garcia and Maryland Senator Hollen introduced joint resolutions stipulating congressional disapproval under the CRA. Other organizations active in the regulatory reversal effort include: Conference of State Bank Supervisors, National Association of Credit Unions, Baptist Cooperative Fellowship, among other agencies.
Consumer advocacy for reversing the “bogus lenders” rule reached a zenith on April 28 when the US Senate Committee on Banking, Housing and Urban Affairs called a hearing. The opening statement by its president, Senator Brown, set the tone and purpose of the forum.
“Like so many things we do, this comes back to a question: whose side are you on?” Senator Brown said.“You can side with online payday lenders who show off their creativity to avoid the law and find new ways to take advantage of workers and their families. Or we can defend families and small businesses, and state attorneys general and state legislatures who have said ‘enough’ and are trying to protect themselves and their states from predatory lending schemes. “
Witness testimony at the hearing made the concerns and options clear to Congress.“For decades, banks used maps to deny loans to communities of color and now they are using maps to serve as loan sharks for those same communities,” Haynes testified. “That the OCC establish a rule that gives predatory lenders a way to charge interest of 200-400% and more, even in states that have fought hard to stop this predation with an interest rate cap of 36%. , that’s really obscene, and like us, I would put it in my community of faith, sinful and demonic. “We ask, finally, for your strong and proactive support for the Congressional Review Act that will overturn the OCC’s true lender rule. And remember Piketty’s wisdom that warns: ‘When private interests outweigh the public’s interest, we are no longer a republic or a democracy.’
“It’s already clear how the OCC rule will work, because OCC-regulated banks are enabling some of the most predatory lending on the market,” Stifler said. “For more than a year, a bank has been helping payday lender CURO with pilot installment loans of up to $ 5,000 with rates up to 179% annual percentage rate (APR). This exorbitantly priced loan is illegal in almost every state. However, the OCC rule invites predatory lenders to evade state laws by paying a bank to put their name on the paperwork. “” Another well-known OCC-regulated bank rents its name and status to the predatory lender. of small businesses, Stifler continued. “WBL loans range from tens, even hundreds of thousands of dollars, and have rates as high as 268%.
North Carolina Attorney General Stein recently shared his state’s experience with a banking entity before warning senators of looming ruin on the nation if appropriate action was not taken. “The OCC, through the Interim Comptroller, not only enforced the False Lenders Rule a week before the 2020 election, it did so illegally,” Stein testified. “The OCC radically exceeded its legal authority by issuing the rule. Although the OCC purports to interpret parts of three federal banking laws, none of them authorize bank rental schemes or give the OCC authority to preempt the true lender doctrine of state law. “
Finally, Stein concluded by saying, “This rule, if not reversed, provides a jail-free card for predatory lenders who violate state laws limiting interest rates and fees on consumer loans.” The most succinct summary came from Senator Brown who said: “Some issues that come before this committee are complicated, they divide people, there are thorny nuances to consider”, the senator from Ohio, ended by saying “This is not one of they. It’s simple: Let’s stop predatory lenders instead of encouraging them. ”
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