Attorney General Becerra Condemns OCC Proposal to Open the Floodgates for Predatory Lending and Rent-a-Bank Schemes

SACRAMENTO – California Attorney General Xavier Becerra today, joining a coalition of 24 attorneys general, submitted a comment letter opposing the Office of the Comptroller of the Currency’s (OCC) proposed “True Lender” Rule (Proposed Rule). This rule would permit predatory lending by allowing non-bank lenders to ignore state interest-rate caps on consumer loans simply by partnering with national banks, which are exempt under federal law from state interest-rate caps. These partnerships are known as "rent-a-bank" schemes and the OCC's Proposed Rule would make them legal. 

“This is yet another blatant attempt by the Trump Administration to let predatory lenders ignore state laws that protect our hardworking families,” said Attorney General Becerra. “It's as clear as day – ill-intentioned lenders will take full advantage of this rule to trap vulnerable consumers in high-cost loans and profit from their inability to repay. We are urging the OCC to withdraw its rule, and focus on providing fair access to financial services instead of helping predatory lenders gouge struggling Americans.”

States have long relied on a rule known as the true lender doctrine in order to fight against sham rent-a-bank arrangements. Under the true lender doctrine, courts recognize the “true lender” of a potentially predatory loan as the party, either the bank or non-bank lender, that bears the predominant economic interest in the transaction. In most rent-a-bank schemes, it is the non-bank lender who bears that interest. The doctrine allows states to demonstrate that a bank is the lender in name only, and accordingly, that any resulting loans are subject to state rate caps.

The latest OCC Proposed Rule would put an end to the true lender doctrine and would instead establish a two-pronged standard that would recognize a national bank as the “true lender” of a loan whenever the national bank is either named as the lender in the loan agreement or funds the loan. As a result, the Proposed Rule would facilitate predatory rent-a-bank schemes and eliminate state’s ability to regulate loans even when a national bank has no substantive interest in the loan. Just over a month ago, Attorney General Becerra led a coalition of attorneys general in suing the OCC over its Non-bank Interest Rule, which allows any entity that buys a loan from a national bank to become exempt from state interest-rate caps. If the Proposed Rule takes effect, the combination of these two Rules will further undermine states’ ability to regulate predatory lending.

In their letter, the attorneys general oppose the OCC’s Proposed Rule because:

• The Rule’s formalistic standard for determining the “true lender” of a loan makes little sense and will lead to absurd and uncertain results;

• The Rule is not a valid interpretation of federal law because it extends privileges held by national banks to non-banks; conflicts with previous rulings by federal courts; and fails to solve the problem the Rule sets out to solve (i.e., clarifying the identity of a loan’s lender);  

• The Rule reverses decades of OCC policy disfavoring rent-a-bank arrangements without acknowledging the reversal and explaining the reasons for it;

• The OCC has failed to follow the procedures set forth in the Dodd-Frank Act; and

• The OCC has failed to consider the harm to consumers that would result from the Rule.

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 to 36 percent. In July, Attorney General Becerra led a multistate lawsuit challenging the OCC’s final rule allowing predatory lenders to evade state interest rate caps and last month led a lawsuit challenging a similar rule from the Federal Deposit Insurance Corporation (FDIC). Previously, in February 2020, Attorney General Becerra submitted a comment letter to the FDIC opposing its proposal to preempt state usury laws that regulate payday loans and other high-cost lending. In January 2020, Attorney General Becerra submitted a comment letter opposing the OCC’s earlier proposal to exempt payday and other high-cost lenders from state usury laws. 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 De La Torre v. Cash Call successfully arguing that the interest rate of the loan may render it unconscionable under California law.

In sending the letter, Attorney General Becerra joined the attorneys general of Minnesota, New York, North Carolina, Colorado, Connecticut, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New Mexico, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, Wisconsin, and the District of Columbia, as well as the Hawaii Office of Consumer Protection.

A copy of the letter can be found here.