OCC issues final “true lender” rule that would help fraudulent, predatory loan schemes

Bank regulator’s rule would facilitate triple-digit interest rate loans that violate state rate cap laws

WASHINGTON, D.C (October 28, 2020) — The Office of the Comptroller of the Currency (OCC) yesterday issued a so-called “true lender” rule that would facilitate “rent-a-bank” schemes where a non-bank lender forms a superficial partnership with a bank in order to charge interest rates beyond what state laws allow non-banks to charge.

Center for Responsible Lending (CRL) Director of State Policy Lisa Stifler issued the following statement:

“This new rule creates an avenue that would facilitate fraudulent ‘rent-a-bank,’ loan laundering schemes. It gives predatory lenders a roadmap to evade state consumer protections while consumers get weak vague standards from an agency that has recently consistently failed to enforce consumer safeguards.

“The timing of the OCC’s embrace of predatory lenders could not be worse. We are in the midst of an unprecedented public health pandemic and a severe economic crisis. We are also at a pivotal moment in our nation’s reckoning with its history of structural racism. It’s difficult to imagine a more inappropriate time to disrupt longstanding safeguards in place since the founding of this country that have played a fundamental role in protecting consumers from abusive financial practices.”

 Additional Background

The vast majority of states and the District of Columbia have some form of a rate cap on installment loans to protect their residents from exploitative lending. Banks are generally exempted from state usury laws through their charters, on which non-banks are seeking to unlawfully piggyback in deceptive partnerships.

The OCC and the Federal Deposit Insurance Corporation (FDIC) are turning a blind eye to several ongoing rent-a-bank schemes, some of which involve loans with annual interest rates around 100% or higher.

This latest action is but one way the OCC is actively encouraging the proliferation of these unlawful arrangements. In May and June respectively, the OCC and FDIC issued final rules that completely misapplied the idea of “valid-when-made” to say that these invalid partnerships allow for the transfer of federal interest rate preemption powers.

Courts have consistently ruled against rent-a-banks schemes when states have challenged them, looking to the “predominant economic interest” of the loan. The OCC is trying to unravel this long-standing doctrine that protects against predatory loan scams.

About Center for Responsible Lending

The Center for Responsible Lending (CRL) is working to ensure a fair, inclusive financial marketplace that creates opportunities for all responsible borrowers, regardless of their income, because too many hard-working people are deceived by dishonest and harmful lending practices. While the housing crash was devastating to families at all income levels, it was disproportionately destructive to entire communities of low- and moderate-income families and borrowers of color. In fact, it wiped out generations of family wealth in these communities. Many of these families had successful 30-year loans, but they were lured by the promises of deceptive marketing and then financially devastated when they were placed in egregious loan products. CRL is a nonprofit, non-partisan organization that works to protect homeownership and family wealth by fighting predatory lending practices. Our focus is on consumer lending: primarily mortgages, payday loans, credit cards, bank overdrafts and auto loans.


Matthew Kravitz

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