On Tuesday, 138 scholars from 43 states and the District of Columbia — including the Center’s Executive Director Ted Mermin — sent a letter to Congress urging it to use the Congressional Review Act (CRA) to overturn the Office of the Comptroller of the Currency’s (OCC’s) final rule on National Banks and Federal Savings Associations as Lenders, known as also the “true lender” rule.
In the letter, the scholars explain how the so-called “true lender” rule displaces state interest rate caps: “The Rule usurps the critical role of states in limiting the interest charged to their citizens by nonbank lenders—a role that states have held since the founding of this country.”
The scholars highlight the fact that all of the original 13 states had usury laws, as do 45 states currently – and that attempts to evade usury laws are as old as the laws themselves. The “true lender” doctrine addresses evasions where payday lenders and other high-cost lenders form “superficial arrangements with banks, put the bank’s name as a lender on the loan agreement, and use the bank as the nominal originator of the loan” in order to take advantage of the lack of state interest rate limits that apply to national banks. Thus, “these high-cost lenders tried to charge borrowers interest rates that were otherwise illegal if the lender made the loan itself.”
Courts have relied on the longstanding anti-evasion doctrine to determine if the “true lender” is a state-regulated lender covered by state usury laws. The scholars criticize the OCC for “rejecting this overwhelming history that courts can ignore contrivances and search instead for the truth in order to prevent evasions of usury laws … The result of the OCC Rule will be to strip states of their agency in regulating usurious lending by nonbanks to their citizens. Over 200 years of legal precedent from states and the U.S. Supreme Court will be eliminated by this ill-conceived and overreaching Rule.”
Congress is considering whether to overturn the OCC rule.