Washington, D.C. July 21, 2020– The Office of the Comptroller of the Currency (OCC) issued a notice of proposed rulemaking to overturn the “true lender” doctrine utilized by courts to stop high-cost lenders from evading state interest rates for more than a century. Comments on the OCC’s proposed rule are due September 3, 2020.

“Coupled with recent actions by other federal regulators, including the Federal Deposit Insurance Commission and the Consumer Financial Protection Bureau, this proposed rule is just another step by this Administration to attempt to roll back critical consumer protections on payday and high-cost loans in the midst of the current financial crisis,” said Rachel Weintraub, Legislative Director and General Counsel with Consumer Federation of America.

“Rather than emboldening payday and high-cost lenders to offer predatory loans that lead to a destructive debt cycle, financial regulators should be focused on tamping down on existing rent-a-bank schemes through their enforcement powers,” said Rachel Gittleman, Financial Services Outreach Manager with CFA.

Forty-five states, as well as D.C., have interest rate caps on many types of small loans, however, banks are generally exempt from these state rate caps. Payday and other non-bank lenders enter into rent-a-bank schemes where they launder loans through banks to be able to charge exorbitant interest rates, well above state usury rates. The true lender doctrine has long been used by courts to stop payday and other non-bank lenders from using banks to evade state interest rates, but the OCC’s proposed rule would overturn this doctrine. Just last month, Attorney General Racine filed a lawsuit against Elevate for charging interest rates between 99 and 251%, arguing that Elevate is the true lender, as they fund the loan, reap the benefits, and take on the risk of the loan.

“In light of these continued actions to deregulate high-cost loans, we need Congress to cap interest rates at 36% during the remainder of the COVID-19 emergency and its financial aftermath. Following a temporary fix, Congress must pass H.R. 5050/S. 2833, the Veterans and Consumers Fair Credit Act, to permanently cap interest rates at 36% for all consumers,” Gittleman concluded.

The Consumer Federation of America is an association of more than 250 nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education.