Jennifer Hogan: Mainers don’t need 160% APR loans
The Lewiston branch of the Community Credit Union is located in Maine’s second poorest census tract. Every day, we watch credit union members and the community tackle situational and generational poverty. We observe our immigrant community facing the challenge of navigating the financial system and building trust with financial institutions.
The last thing our members need are predatory loans that worsen their economic situation.
The good news is that Maine has strict laws with interest rate limits that prevent predatory lending. The bad news is that some evasive lenders are finding ways to get around our laws – and a federal bank regulation rule passed late last year supports these escapes. Congress should seize the opportunity to overturn this rule using the Congressional Review Act – but time is running out.
In a “lease from bank” scheme, a high-cost nonbank lender finds a bank to play a symbolic role and inscribes its name on the loan agreement, claiming that the loan is a exempt “bank loan” from. state interest rate limits (banks are generally exempt from state rate limits).
Bank rental programs began in the early 2000s with payday lenders. But state attorneys general, courts and federal bank regulators have shut them down. Relying on a centuries-old anti-evasion doctrine, the courts looked beyond the name of the bank on the contract to determine who operated and benefited from the loan program. In other words, the courts followed the money to find that the payday lender, not the bank, was the “true lender” and was subject to state law.
Today, a new wave of bank rent evasion schemes are back, and are already working in Maine, but this time with high cost installment loans that Maine does not allow. Non-bank lenders who shouldn’t charge more than 30% APR on a $ 2,000 loan charge 160% APR or more when lending the loan through an obscure bank outside of Maine. These loans can be offered online or on tablets at mechanics or even pet stores, where consumers may think they are benefiting from a free installment plan.
We have seen that several members of the Community Credit Union pay these lenders hundreds of dollars, month after month, which exacerbates their financial difficulties.
Shockingly, a rule enacted late last year by the Federal Office of the Comptroller of the Currency protects these arrangements and prevents the courts from examining the facts and the truth. The rule says that the “real lender” is only determined by the name in the fine print of the contract. In other words, if a bank regulated by the OCC is named as the lender of a loan at an annual rate of 160% granted to a resident of Maine, federal law prevails over the laws of Maine which prohibit lending at that rate at our residents, even if the bank does not have much to do. with the loan.
We have already seen obscure banks regulated by the OCC facilitate these programs for consumer and small business loans. And the OCC rule has already been used as a defense to justify a 268% APR loan of $ 67,000 to a restaurateur in New York City (where the legal rate is 25%) and to defend a 160% APR loan to a disabled veteran in California. , where the legal rate is 36% plus the federal funds rate.
These non-bank lenders operate on an uneven playing field, relying on the benefits of OCC preemption to bypass state consumer protections that other state-regulated lenders adhere to, placing borrowers at risk. These loans extract wealth and cause lasting damage to the financial security of households and communities.
The senses. Collins and King and Reps Pingree and Golden are expected to support the resolution to overturn the OCC rule to prevent predatory lenders from evading Maine law. At a time when low-income consumers and small businesses can least afford it, the OCC rule allows for destructive and expensive loans and shortens the reach of COVID relief efforts.
Jennifer Hogan is the President and CEO of the Community Credit Union, which has branches in Lewiston, Auburn and Turner.