Today, the Office of the Comptroller of the Currency issued a proposed rule to overturns the “true lender” rule that courts have used since the early 1800s to prevent evasions of state usury laws. The deadline to submit comments on the OCC’s proposal is September 3, 2020.
In a statement, the National Consumer Law Center warned that the proposal would turn state usury laws into a "dead letter" and eviscerate power that states have had since the time of the American Revolution to protect people from high interest rates and predatory lending.
At least 45 states and the District of Columbia have interest rate caps on installment loans. Under the proposal, NCLC explained, "a payday lender or other nonbank lender could ignore state interest rate limits as long as either a bank ‘[i]s named as the lender in the loan agreement,’ or the bank ‘[f]unds the loan’ — that is, the payday lender launders the loan through the bank. This proposal would allow payday lenders to resume the rent-a-bank schemes that were shut down by bank regulators in the mid-2000s, and would embolden today’s high-cost predatory rent-a-bank lending by online installment lenders.
“The proposed rule would purport to overturn the ‘true lender’ doctrine, which allows courts to prevent evasions of usury laws by looking beyond the technical form or fine print of a loan transaction to examine which party has the predominant economic interest in the loan. The true lender doctrine has long been used to prevent payday lenders and other high-cost lenders from laundering their loans through banks, which are not subject to state interest rate caps.