Washington D.C. joined seven states in suing a bank regulator over a rule they fear could encourage predatory lending by stopping them from leveling state laws against exploitative interest rates, Reuters said.
The complaint, filed in Manhattan federal court against the Office of the Comptroller of the Currency (OCC), centers around the “True Lender Rule,” which was made to determine when a bank is the “true lender” in loans originated in one state and sold off in another, Reuters writes.
According to the OCC, the rule would work to provide a legal certainty for when banks want to partner with other market participants to meet their customers’ credit needs.
According to the states, though, this rule would serve to let lenders bypass laws that put caps on high interest rates by originating loans in less strict states and moving them around, Reuters writes.
New York Attorney General Letitia James said the new rule would have an opposite effect of what the OCC said it was for.
“Rather than stem the tide of exploitative and predatory loans that trap vulnerable consumers in cycles of debt, the Trump Administration wants to open the floodgates by sanctioning schemes that allow the financial services industry to target … and paint a bullseye on the backs” of consumers, she said, according to Reuters.
According to the states, the rule is in conflict with Dodd-Frank financial reform law, and history has shown that non-bank lenders usually found it “far more profitable to make high-interest-rate loans to consumers who struggle to repay and that often end in default.”
Among the pandemic’s many shifts is the one banking has undergone, PYMNTS writes, with many new types of companies seeking to become banks, including Oportun Financial Corp., Varo Money and Square, in a haul of 10 firms applying to the OCC — the largest amount in a decade.
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