Some financial issues are like Shrek-shaped Russian nesting dolls— they have more layers than onions and are buried within each other. A Congressional Review Act resolution to repeal an Office of the Comptroller of the Currency rule promulgated in October of 2020 is one such issue.
This wonky issue concerns ‘Rent-a-Bank’ practices, whereby a payday lender (short-term, high cost loans with APR in the triple digits) gets around state usury laws by laundering their loans through banks (which aren’t subject to state usury laws). In October of 2020, the OCC, a federal regulator, gave this dangerous process a greenlight.
The process is like this.
You’re a consumer. You file for a loan at a payday lender. The lender processes your loan and sends it to a bank (these banks aren’t Bank of America, but smaller ones in Kentucky, Utah, and other states). You get your money from the bank. The bank then sells the loan back to the payday lender you applied to for the loan. You, the consumer, unaware of this backdoor dealing, pay the exorbitant interest as well as your loan back to the payday lender.
The OCC is one of the more powerful federal regulators- it regulates national banks and savings and loan associations. It gives banks their charters, and writes rules that govern how financial institutions do business. The OCC also writes rules.
The rule we dislike so much is called “True Lender” for reasons that will become clear in the next sentence. The OCC decided that as long as there was a bank name listed as the lender at the time of origination then that bank was the ‘true lender’ of the loan. Consumer advocates like us argue that if you follow the money, it is obvious that the real lender of the loan is the payday lender.
This is where the Congressional Review Act (CRA) plays its crucial role. Last week, US PIRG and all state PIRGs joined with over 300 other nonprofit groups to tell Congress to introduce a CRA resolution to undo the OCC’s rule. We were successful, but now, as with so many other pieces of legislation, the uphill battle begins.
As we stand today, there are 18 states and the District of Columbia that have rate caps of 36% or lower that protect over 110 million Americans from predatory lenders. By allowing payday lenders to launder their loans through banks, the OCC is allowing these predatory loans to evade state interest rate limits and are undermining states’ ability to protect their own consumers. A CRA resolution would be an effective way to undo this harmful rule.
Before 2017, it was used successfully once.
Under the Trump administration, it was used successfully 16 times, for rules that ranged from protecting wildlife in Alaska to provisions that require phone companies to protect customer proprietary information confidentiality.
So far, there have been five CRA’s introduced, looking to undo threats against environmental and consumer protections.
The CRA on the OCC’s “True Lender” rule was introduced Thursday 3/25 in the Senate by Sen. Van Hollen (D-MD) and Sen. Brown (D-OH), and Friday 3/26 in the House by Rep. Jesús “Chuy” Garcia (D-IL). By most estimates, it needs to be voted on before mid-May to be undone.
May the odds be ever in our favor.