OCC Rule Would Undermine State Usury Laws: Activists

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Liberal activists are not happy with new proposed changes from the OCC regarding state usury laws. See reactions below from two different groups.

Today, the Office of the Comptroller of the Currency (OCC) announced a proposed rule on the true lender doctrine. Under the proposal, a bank is considered to be the “true lender” if it is named as the lender or if it funds the loan.


Jesse Van Tol, CEO of the National Community Reinvestment Coalition, made the following statement:

“This rule from the OCC will protect banks, undermine states and make consumers more vulnerable to exorbitant interest rates. The proposed rule would take away from states the longstanding right to impose interest caps inside their borders, a privilege given to states for over two hundred years.

“It is very concerning that at a time when many people are struggling to make ends meet, when the nation’s pandemic economy is in tatters, and millions are out of work, the Trump Administration would rush forward on a proposal that favors more high-cost lending.

“Bank charters aren’t meant to be a way to immunize payday lenders from state attorneys general. The OCC’s approach rubber-stamps evasion of state laws.

State usury laws and banks

“States’ attorneys general have used the true lender doctrine to protect their residents from the dangers of high-cost loans, arguing that such relationships are merely a ruse that enables a bank to ‘rent’ its charter to non-bank lenders in exchange for compensation.

“In a typical rent-a-charter partnership, while a bank funds a loan and has its name on the loan contract, it does none of the marketing, does not interact with the consumer, and ceases to have any relationship to the customer or the loan after only a few days. Typically, a bank sells all or almost all of the loan back to its non-bank partner within a few days of issuing the loan, and indeed, with the exception of the borrowers who read the fine print on the loan contract, few people will ever understand that a bank was involved in the transaction at all. The bank usually takes a fee of one or two percentage points, while its non-bank partner receives the majority of the economic return on the loan.

“The truth is that states are making good use of the true lender doctrine on their own, and any intervention by the OCC only reflects an effort to use pre-emption power to overcome the ability of states to enforce their own laws.

“It is perplexing how the OCC could see this proposal as a means to ensure that consumers will have access to affordable credit when the evidence on the ground is that the evasive partnerships it facilitates are being used to make loans with interest rates of more than 100%.”.

AFR on OCC and state usury laws

Statement from Linda Jun, senior policy counsel, Americans for Financial Reform, on the OCC’s proposal rule overturning the “true lender doctrine” that courts have used for over a century to stop lenders from evading state usury laws:

“The OCC proposal is nothing more than a plan for unleashing predatory lenders to peddle dangerous financial products nationwide by eviscerating the power of state usury laws. Many states have interest rate caps that are very effective guardrails against predatory lending. They are highly popular among voters in diverse states, many of whom put the limits in place through ballot initiatives. This destructive rule would only serve the interest of high-cost lenders, who have been very active in lobbying this administration to enable them to expand abusive practices.

The OCC has chosen to eliminate safeguards at a time when many communities are particularly vulnerable as they navigate the economic fallout caused by the COVID-19 pandemic. With other financial regulators, including the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corporation, joining together to enable predatory lending in their own ways, we need Congress to step in and impose a national rate cap to protect all Americans from the harm of the debt trap.”