SACRAMENTO – California Attorney General Xavier Becerra, alongside Illinois Attorney General Kwame Raoul and New York Attorney General Letitia James, filed a lawsuit challenging the federal Office of the Comptroller of the Currency’s (OCC) recently announced final 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 final rule extends these exemptions to any lender that buys loans that are originated by an exempt federal bank. The final 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 permissible 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 Attorney General 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. Particularly 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. While federal law provides a carve out from state interest-rate caps for federally regulated banks, state law continues to protect residents from predatory lending by non-banks such as payday, auto title, and installment lenders. 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 (Dodd-Frank Act), preserving more protective state laws. Yet the OCC’s new rule extends the National Bank Act exemption for federally regulated banks to non-bank debt buyers.
In the lawsuit, the coalition argues that the OCC’s decision to extend National Bank Act preemption to non-banks violates the Administrative Procedure Act because, among other things, it conflicts with the National Bank Act, fails to comply with requirements established by the Dodd-Frank Act, and exceeds the OCC’s statutory authority.
Attorney General Becerra is committed to upholding consumer protections, which is why he supported California’s adoption of legislation that limits interest rates on loans between $2,500 and $10,000 at 36 percent. Previously, in January 2020, Attorney General Becerra submitted a comment letter opposing the OCC’s proposal to exempt payday and other high-cost lenders from state usury laws. In February 2020, Attorney General Becerra submitted a comment letter to the Federal Deposit Insurance Corporation opposing its proposal of similar usury laws that regulate payday and other high-cost lending. In October 2017, Attorney General Becerra issued a statement in support of the federal Consumer Financial Protection Bureau’s (CFPB) Payday Lending rule. In March 2019, he submitted a comment letter opposing a proposal by the CFPB to formally delay the implementation of its 2017 Payday Rule. Additionally, Attorney General Becerra filed an amicus brief in support of the consumer-plaintiff in DeLaTorre v. Cash Call successfully arguing that the interest rate of the loan may render it unconscionable under California law.
A copy of the complaint can be found here.