SACRAMENTO – California Attorney General Xavier Becerra, co-leading a bipartisan coalition of attorneys general with Illinois Attorney General Kwame Raoul and New York Attorney General Letitia James, submitted a comment letter opposing a proposal by the Office of the Comptroller of the Currency (OCC) to exempt payday and other high-cost lenders from state usury laws. Usury laws prevent predatory lenders from taking advantage of consumers by charging high interest rates on loans. California recently enacted one such law capping interest rates for loans under $10,000. If finalized, the OCC’s proposed regulations would enable predatory lenders to circumvent these caps through “rent-a-bank” schemes, in which banks act as lenders in name only, passing along their state law exemptions to non-bank payday lenders. These arrangements would allow lenders to charge consumers rates that far exceed the rates permissible under California’s new law.
“Predatory lenders have long taken advantage of California communities that are already struggling to get by,” said Attorney General Becerra. “We recently took an important step here to protect our communities by adopting new rate caps, and now the OCC is trying to create loopholes that benefit the payday lenders. The federal government should be fighting to stop these bad actors – not enabling them. We remain committed to upholding consumer protection laws that safeguard working families.”
States have long played a critical role in protecting residents from high-cost loans. While federal law provides a carve out from state law 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 that role with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, preserving more protective state laws. Yet, the new regulations proposed by OCC would extend the National Bank Act exemption for federally-regulated banks to non-bank debt buyers such as payday lenders. The proposed rule is a sharp reversal in policy and a deliberate attempt to evade state laws that target predatory lending.
Last year, California adopted new legislation, supported by Attorney General Becerra, limiting interest rates on loans of up to $10,000 at 36 percent. At least three participants in the market for high-cost loans have already indicated that they plan to pursue rent-a-bank arrangements to circumvent California law.
The multistate coalition argues in the comment letter that the OCC’s attempt to extend National Bank Act preemption to non-banks conflicts with the National Bank Act and Dodd-Frank Act; exceeds the OCC’s statutory authority; and violates the Administrative Procedure Act.
Joining Attorneys General Becerra, Raoul, and James in filing the comment letter today are the attorneys general of Colorado, Hawaii, Iowa, Maryland, Massachusetts, Michigan, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, South Dakota, Virginia, Washington, Wisconsin, and the District of Columbia.
A copy of the comment letter can be found here.