As part of her ongoing efforts to protect New York consumers from federal regulatory overreach, New York Attorney General Letitia James has co-led a coalition of 24 attorneys general in objecting to a proposed Trump Administration rule that would undermine New York’s efforts to prevent predatory lenders from taking advantage of the states’ most vulnerable consumers. The proposed rule would enable predatory lenders to charge high interest rates on loans and bypass state interest rate caps — or usury laws — already in place, and is part of a systematic, coordinated assault on state usury laws. In a comment letter submitted to the Office of the Comptroller of the Currency (OCC), Attorney General James and the coalition urge the OCC to rescind the proposed rule that would enable predatory lenders to circumvent these caps through “rent-a-bank” schemes — arrangements in which heavily regulated national banks act as lenders in name only for the express purpose of enabling payday lenders and other non-banks to conspicuously evade state consumer protection laws.
“This rule would be a mistake at any time, but the Trump Administration’s attempts to unleash predatory lenders on unsuspecting New Yorkers in the midst of a pandemic that has already wreaked financial havoc on millions is cruel and heartless,” said Attorney General James. “Rather than stem the tide of exploitative and predatory loans that trap vulnerable consumers in cycles of debt, the Trump Administration wants to open the floodgates by sanctioning schemes that allow the financial services industry to target New Yorkers. Rent-a-bank schemes make a mockery of federal law, and the administration’s sanctioning of these schemes undermines the sovereignty of the states whose legislatures and voters have told payday lenders, in no uncertain terms, that their ‘services’ are not welcome here.”
Under the federal National Bank Act, national banks that are licensed and regulated by the OCC are permitted to charge interest on loans at the maximum rate permitted by their “home” state, even in states where that interest rate would violate state usury laws. The ability to preempt state usury laws in this way is a privilege granted to national banks — and only to national banks — because they are subject to extensive federal oversight and supervision. This privilege is also extremely valuable to national banks because it permits them to lend money at rates greatly exceeding those ordinarily permissible under state law.
For years, non-bank entities have attempted to partner with national banks to take advantage of these banks’ special privileges and to offer ultra-high-rate loans in states where such loans are forbidden. Much to the dismay of non-bank lenders and their national bank partners, courts in New York and elsewhere have examined these lending relationships with exacting scrutiny and concluded that the national bank is not the “true lender” of the loan — thus, state-law usury caps apply to the non-bank lenders. But, under the new regulations proposed by the OCC, courts would be prevented from engaging in any such inquiry so long as the national bank is either named as the lender on loan documents or the bank initially “funds” the loan. Further, the new proposed rule would allow the bank to instantly sell the loan and never take any meaningful risk on it. This rigid, formalist approach will provide an advantage to only banks and predatory lenders, and will do so at the expense of hardworking and unsuspecting consumers. Moreover, this radical Trump Administration proposal represents a stark departure from decades of OCC policy admonishing national banks from entering into these sham “rent-a-bank” arrangements.
In the comment letter, the states object to the proposed rule, arguing that it stands in direct conflict with the National Bank Act and the Dodd-Frank Act, exceeds the OCC’s statutory authority, and violates the Administrative Procedure Act. Further, Congress has clearly rejected legislation to expand the National Bank Act preemption to non-banks, further undermining the OCC’s attempt to rewrite federal law to suit its extreme policy preferences.
This proposed rule is just the latest attempt by the Trump Administration to undermine state usury laws and the protections they provide to consumers. An earlier, similar proposed rule by the OCC would allow banks to sell any high interest loan to a nonbank, predatory lender in an effort to evade interest rate protections. In January, Attorney General James led a bipartisan coalition in sending a comment letter to the OCC opposing the proposed rule, and, in late July, Attorney General James co-led the filing of a lawsuit against the OCC for issuing that proposed rule. Likewise, in February, Attorney General James co-led a bipartisan coalition in sending a comment letter to the Federal Deposit Insurance Corporation (FDIC), opposing a similar proposed rule prioritizing predator lenders above consumers, and just last month, she co-led a coalition in a lawsuit against the FDIC for its proposed rule.
Joining Attorney General James in sending the comment letter to OCC are the attorneys general of California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, Wisconsin, and the District of Columbia, as well as the Hawaii Office of Consumer Protection.
This matter was handled by Assistant Attorney General Christopher L. McCall and summer law interns Daniel Ocampo and Tyler Ross, under the supervision of Deputy Bureau Chief Laura J. Levine and Bureau Chief Jane M. Azia — all of the Consumer Frauds and Protection Bureau. The Consumer Frauds and Protection Bureau is part of the Division for Economic Justice, which is overseen by Chief Deputy Attorney General Chris D’Angelo and First Deputy Attorney General Jennifer Levy.