Congress Must Overturn OCC’s ‘Fake Lender’ Rule: Payday Lenders Benefit, Consumers Lose

If Congress doesn’t act soon to repeal a rule by the Office of the Comptroller of the Currency, the floodgates will be open for predatory lending in all 50 states and the District of Columbia.

Two decades ago, payday lenders came up with a brilliant scheme: Not content with making 400 percent APR loans in the large number of states that allowed their loans, they found a way to evade the interest rate laws of other states that do not allow triple-digit loans.

Here’s how they did it: As a result of deregulation, banks are almost entirely exempt from state interest rate limits. So payday lenders found unscrupulous banks to partner with so they could claim the payday loans were bank loans exempt from state rate caps. The consumer took out the loan from a payday loan store, but a bank’s name was on the loan agreement and the check came from a bank. And the payday lender collected the loans and kept most of the profits, claiming only to be an agent or assignee of the bank.

After several years of lawsuits by state attorneys general, banking regulators and consumers, and the efforts of federal bank regulators to crack down on this practice, “rent-a-bank” lending by payday lenders ended.

Now in 2021, rent-a-bank lending by payday lenders is back – with larger and longer-term installment loans and now protected by a rule issued last year by the regulator of national banks, the Office of the Comptroller the Currency. Congress has an opportunity to overturn the OCC’s “true lender” rule under the Congressional Review Act and restore states’ ability to enforce their usury laws.

Many payday lenders that initially offered triple-digit balloon payment loans have expanded their products to offer installment loans, still carrying exorbitant rates for a longer term and higher dollar amount. Effectively, these lenders are peddling both short- and long-term debt traps. CURO, which offers payday loans under the Speedy Cash brand, has been using Verge Credit to pilot loans through OCC-regulated Stride Bank with up to 179 percent APR. CURO shared with investors that the bank program “will help us expand geographically, online and in some states where we — where we don’t operate right now” – that is, in states that do not allow that rate.

The OCC has allowed this rent-a-bank loan program to continue for nearly a year. In just the last week – as the debate over the fake lender rule started heating up – Verge stopped accepting loan applications, and the top rate dropped to “only” 92 percent APR. But even that rate is an affront to voters who overwhelmingly, on a bipartisan basis, have voted for rate caps of 36 percent.

Other payday lenders – the parent companies of CashNetUSA, Check ‘n Go, and Check Into Cash — have their own rent-a-bank installment loans, offering loans at rates well north of 100 percent APR in states that prohibit those rates. Check Into Cash stores in Arizona, where voters in 2008 strongly reaffirmed the state’s rate cap of 36 percent plus a small fee, now have posters offering $1,100 loans at 225 percent APR.

Supporters of the OCC’s rule claim it allows for clarity and a uniform approach to working with third parties. But the rule changes the ability of predatory lenders to hide behind a bank – as nearly every state has exempted banks from their rate caps. The reality is a handful of rogue banks are serving as a rubber stamp on high-cost payday and installment loans that are evading state laws.

Even in 1825, the Supreme Court emphasized the importance of looking out for subterfuges when enforcing usury laws and protecting against evasions:

Usury is a mortal taint wherever it exists, and no subterfuge shall be permitted to conceal it from the eye of the law; this is the substance of all the cases, and they only vary as they follow the detours through which they have had to pursue the money lender.

Over 340 community organizations from all 50 states, including faith, civil rights, consumer, small business and disability rights groups have called on Congress to overturn this rule. It should do so without delay.

Lauren Saunders is the associate director of the National Consumer Law Center, focusing on consumer protection and safe banking.

Lisa Stifler is the director of state policy at the Center for Responsible Lending, focusing on state and federal policies that protect family wealth by working to eliminate abusive financial practices.

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