Three attorneys general have filed a lawsuit challenging the federal Office of the Comptroller of the Currency’s recently announced rule that exempts buyers of high-interest loans from state interest-rate caps.
The OCC rule takes aim at state laws that protect consumers from predatory lenders. Under existing federal law, federally regulated banks are exempt from state interest-rate caps. The OCC’s rule extends these exemptions to any lender that buys loans that are originated by an exempt federal bank.
The rule worsens the problem of “rent-a-bank” schemes, in which predatory lenders partner with banks that act as the lender in name only so that the predatory lenders can evade state interest-rate caps.
The OCC's rule allows predatory lenders that would otherwise be subject to California interest-rate caps to charge consumers interest that far exceeds the rates allowed under California law.
“As the Trump Administration opens the door to predatory lending, we'll work to close it by taking them to court," said California Attorney General Xavier Becerra. "Our state recently strengthened its protections against high-cost predatory lending. Now, the OCC creates loopholes that allow predatory lenders to bypass our laws.”
Becerra said during this period of economic crisis, the Trump administration should fight to stop these bad actors, not enable them.”
States have long played a critical role in protecting their residents from high-cost loans, he said.
Congress affirmed the importance of state interest-rate limits and other laws with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, preserving more protective state laws. However, the OCC’s new rule extends the National Bank Act exemption for federally regulated banks to non-bank debt buyers.
In the lawsuit, Becerra and attorneys general from New York and Illinois argue that the OCC’s decision to extend National Bank Act preemption to non-banks violates federal law and exceeds the OCC’s authority under the law.