In recent years, consumer credit protections have withered due to a series of harsh attacks that have either outright dismissed or significantly reduced financial safeguards in the market. But yet another victory for consumers, spurred on by a wave of support from ordinary citizens, academics and bicameral lawmakers, signals an important step towards fair financial rules.
The June 30 signing of President Joe Biden ended a misguided rule that favored predatory lending over American consumers.
âThese are so-called ‘rent-a-bank’ programs,â President Joe Biden said at the June 30 signing ceremony. âAnd they allow lenders to prey on veterans, seniors, and other unsuspecting borrowers by tapping into the – trapping them in a cycle of debt. And the last administration let it happen, but we won’t.
Days earlier, on June 24, a bipartisan 218-208 vote in the United States House of Representatives sent a key change to financial rules to the president’s desk. A few weeks earlier, the Senate had passed the same bill with a bipartisan vote. Using the authority of the Congressional Review Act, the votes sought to eliminate a recently passed bylaw. In this case, the goal was to reject the Office of the Comptroller of the Currency’s (OCC) âbogus lenderâ rule issued at the end of the Trump administration.
As the seat of government of the nation, Capitol Hill is a place where a range of interests vie for both attention and influence. Public interest organizations with limited budgets but principled can often find themselves disadvantaged by entrenched interests.
That’s why it’s important to recognize and celebrate overcoming obstacles to forge changes that translate into real benefits for ordinary people and small businesses. Especially for black America and other communities of color, strong steps towards ending the billion dollar financial abuse deserve special attention. Historically, we have already paid the price for predatory greed.
“Eliminating this damaging OCC rule will prevent more people from being exposed to high interest loans that plunge borrowers into debt and despair,” said Graciela Aponte-Diaz, director of federal campaigns at the Center for Responsible Lending (CRL).. âRemoving the rule will curb the spread of predatory loans that target blacks, Latinxes and low-income people – many of whom are struggling with the economic downturn. This action will allow states to protect their residents by enforcing their national interest rate laws. “
As noted earlier in this column, the OCC’s âreal lenderâ rule has given the green light to predatory lenders. By effectively overturning a series of state laws in nearly every state enacted to prevent abusive payday loans, car titles and installment loans with explosive interest rates of over 100% came into effect late December 2020. High cost payday and installment lenders have paid fees. to the banks for using their name and charter to evade state interest rate laws by claiming the bank’s exemption from those laws for itself.
Consumer advocates have called the rule change a “bogus lender” because the real lender is the predatory non-bank lender – not a bank.
Reactions to the successful consumer challenge soon followed. One of the first public comments came in the form of a joint statement from two key US senators.
âRepealing Trump’s ‘Rent-a-Bank’ rule will help prevent predatory lenders from scamming consumers and charging deceptive loan rates,â noted Senator Chris Van Hollen of Maryland, Member of the US Senate Committee on Banking., Housing and Urban Affairs and resolution co-sponsor.
“The OCC, when it allowed banks to evade state interest rate caps, betrayed working families and attacked states’ ability to protect their citizens from predatory loans,” added Senator Sherrod Brown of Ohio, chairman of the committee. âCongress has shown the people we serve that we are on their side. “
For California MP Maxine Waters, chair of the House financial services committee, the resolution rids the nation of financial garbage.
The Trump-era ‘True Lender’ rule is a backdoor for non-banks to charge triple-digit interest rates on loans at the expense of consumers in states where voters have passed laws on loans. the cap on interest rates, “Waters said. âNo wonder some call it the ‘bogus lender’ rule. “
The extent of the financial harm resulting from this ill-advised rule has been documented by the National Consumer Law Center (NCLC), a member of a diverse coalition that has advocated repeal.
According to the NCLC, Predatory small business lenders use the bogus lender rule to defend an annual percentage rate (APR) of 268% on loans totaling $ 67,000 to a black restaurant owner in New York City, where the criminal usury rate is 25%, and secured by property in New York Jersey, where the legal limit is 30%. The lender claimed that a Nevada-based bank’s nominal stake justified its astronomical rate. Nevada places no interest limit on loans.
In another example, OppLoans (also known as OppFi), an online lender offers 160% APR loans in 26 states that ban triple-digit rate lending. This lender also cited the OCC’s bogus lender rule to defend its loan to a disabled veteran in California, where the usury rate on the loan is 24%. OppLoans is also evading state rate cap laws backed by a large majority of voters in Arizona, Montana, Nebraska and South Dakota. Even in states where legislatures have passed rate caps, the bogus lender rule would have essentially nullified those rate cap protections.
For consumer advocates, as well as their partners in the civil rights, faith and veterans communities, revoking the bogus lender rule is a step toward a national loan rate cap of no more than 36%.
Years ago, the bipartisan enactment of the Military Loans Act granted double-digit rate cap protections to men and women in uniform. It is time for all of America to have the same financial protection.
Charlene Crowell is Senior Fellow at the Center for Responsible Lending. She can be reached at [emailÂ protected].