NACA Leaders in 36 States, DC Balk at “Fake Lender” Rule

Release Date: 
April 27, 2021
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For Immediate Release:

Consumer Advocate Leaders in 36 States and Washington, D.C. Balk at “Fake Lender” Rule

The National Association of Consumer Advocates Releases Letter Signed by Its State Leaders Urging Congress to Rescind OCC Lending Rule

WASHINGTON, D.C. – The U.S. Congress should immediately pass a resolution to rescind a “sweeping and extreme regulation” issued last year by the Office of the Comptroller of the Currency (OCC), 43 state leaders of the National Association of Consumer Advocates said today. The rule allows non-bank entities outside the OCC’s authority to evade state interest-rate lending limits. (Letter to U.S. House and letter to U.S. Senate). 

“This rule will hurt borrowers in our states,” NACA’s leaders from 36 states and the District of Columbia said in a letter sent to Congress today. It “severely infringes on our respective state laws that help shield residents from usury and other financial abuses.” 

The rule allows non-bank lenders charging up to 179% APR or more to disregard state usury laws merely by adding a bank’s name to the loan agreement and claiming that it is a “bank loan” that can charge interest above state law rate caps. These non-bank lenders benefit from the federal law that exempts national banks and federal savings associations from state rate cap laws. 

“High-cost nonbank online lenders are sidestepping Arizona law by partnering with out-of-state rogue banks,” said David Chami, NACA’s Arizona co-chair and a consumer attorney based in Scottsdale. “This predatory lending scheme hurts veterans and small-business owners in our states.”  

Lenders have argued in the past that their product was a “bank loan” exempt from state rate caps, but courts determined that banks had little involvement with these loans. Relying on a substance-over-form anti-evasion doctrine endorsed by the Supreme Court, courts of nearly every state have found that non-bank lenders were the true lenders of loans, and therefore subject to the respective state usury laws.

“By disregarding 200 years of case law allowing courts to follow the money to prevent evasions of state usury laws, it’s clear this true lender rule is not “true” at all. It is deceptive,” said Christine Anderson Ferraris, NACA Arizona co-chair, a consumer attorney based in Tucson. “We call on Congress to preserve Arizona’s and other states’ interest rate caps by repealing this harmful and invasive policy.”

The state chair letter also noted the ongoing COVID-19 health and financial emergency. When families and small businesses are struggling and fighting to survive, state governments should be able to enforce their laws to shield residents and small businesses from usurious loans.  

“Congress should send a clear message that the OCC’s dubious effort to block state protections and threaten states’ authority to safeguard their residents’ financial wellbeing is improper,” the NACA state leaders said. 

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