States accuse federal government of leaving payday lenders a loophole in usury laws

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Coalition of 18 states and the District of Columbia calls on the Office of the Comptroller of the Currency (OCC) to reconsider a proposal that states say would give payday lenders a loophole to bypass state usury laws .

A number of states have enacted laws to limit the interest rate on small dollar loans to no more than 36 percent APR. Since payday lenders charge fees that often go as high as 400% of the APR, they cannot operate in these jurisdictions.

State officials argue that, if finalized, the OCC’s new rule would allow predatory lenders to bypass these interest rate caps through “rent-a-bank” programs, in which banks act as lenders only on behalf and pass their exemptions from state law to non-bank payday lenders.

“The Trump administration has continued to show that its prerogative is to protect predatory lenders instead of protecting borrowers and this proposed OCC regulatory change is no exception,” Virginia Attorney General Mark Herring said. “Virginia’s usury laws are in place to protect borrowers from extremely high interest rates.

Regulated banks are not bound by usury laws

In one letter to Joseph M. Otting, head of the OCC, Herring and the other attorneys general expressed concern that heavily regulated state chartered banks and national banking and savings associations, which are not linked by the state usury laws, can join forces with payday lenders and pass this exemption to them.

State officials point out that large banks benefit from this exemption by being heavily regulated, but payday lenders are not.

A coalition of consumer groups has also issued warnings regarding the proposed change to OCC rules. In 55 pages of comments filed with the OCC, the groups say the proposed rule would allow predatory non-bank lenders to “launder their loans through banks to escape state interest rate caps.” .

The groups further argue that the OCC does not have the statutory authority to make such a rule change.

“This is not supported by any evidence of a problematic impact on legitimate banking operations and the OCC did not take into account the high likelihood that the proposal would trigger a torrent of predatory lending,” the groups said. declared. “The proposal will remove the powers that states have had since the days of the American Revolution to protect their residents.”

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