AG press release: Hawaii Attorney General urges Congress to overturn a proposal allowing predatory lenders to take advantage of consumers
HONOLULU– – Hawaii Attorney General Clare E. Connors joined a non-partisan coalition of 25 attorneys general led by Illinois Attorney General Kwame Raoul. The rule would sanction costly lending systems designed to evade state usury laws. Such laws or caps prevent predatory lenders from taking advantage of consumers by limiting the interest rates that can be charged on loans.
The coalition issued a letter calling for the OCC’s True Lender Rule to be repealed, as this would allow predatory lenders to bypass government interest rate caps through “rent-a-bank” systems, where banks only act as lenders by name and pass on their rights to state exemptions for non-bank payday lenders. These agreements would allow lenders to charge consumer rates well above the rates allowed under US usury laws.
“Predatory lenders must not take advantage of consumers by charging exorbitant interest rates,” said Attorney General Connors. “To prevent unscrupulous lenders from circumventing our state usury laws, I joined this non-partisan coalition and asked Congress to repeal the True Lender Rule.”
In January 2021, a consortium of states filed a lawsuit to prevent the implementation of the OCC’s True Lender Rule. However, Congress can solve this problem by repealing the rule of the Congressional Review Act (CRA). In today’s letter, the coalition calls on Congress to pass upcoming House and Senate resolutions, introduced on March 26, 2021, that use the CRA to repeal the True Lender Rule. If Congress does not use the CRA to overturn this rule, the state litigation to cease enforcement can take several years. While this lawsuit is pending, small-dollar predatory lenders can use rent-a-bank models to evade government usury caps and harm consumers.
The National Bank Act allows federally regulated banks to charge interest on loans at the maximum rate permitted by their “home state”, even in states in which this interest rate would violate state usury laws. For years, non-banks such as payday, auto title and installment lenders have tried to work with national banks to take advantage of banks’ exemptions from government interest rate caps to allow ultra-high interest rate loans to be banned in states where such loans are issued. The courts have examined these credit relationships and have come to the conclusion that state usury limits apply to non-bank lenders, since the National Bank is not the “real lender” of the loan.
The OCC’s True Lender Rule would prevent courts from intervening if a national bank is either named as the lender in loan documents or if the bank initially “finances” the loan. In addition, the rule would allow the bank to sell the loan immediately and never take any significant risk. This rigid, formalistic approach only offers banks and predatory lenders an advantage at the expense of hardworking and unsuspecting consumers. In addition, the rule represents a clear departure from the decades-old OCC policy in which national banks are admonished to enter into these bogus agreements on renting a bank.
Along with Attorneys General Connors and Raoul in this letter are the Attorneys General of Arkansas, California, Colorado, Connecticut, Columbia District, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, South Dakota, Vermont, Virginia, and Wisconsin.
A copy of the letter is available Here.
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For more information contact:
Gary H. Yamashiroya
Special Assistant to the Attorney General
E-mail: [email protected]