September 02, 2020
SUPERINTENDENT LACEWELL ANNOUNCES DFS’ OPPOSITION TO FEDERAL GOVERNMENT’S PROPOSED TRUE LENDER RULE
OCC’s Proposed True Lender Rule Would Undermine State Banking and Consumer Protection Laws
Superintendent Linda A. Lacewell today announced the New York State Department of Financial Services’ (DFS) opposition to the U.S. Office of the Comptroller of the Currency’s (OCC) proposed true lender rule.
If enacted, the OCC’s proposed rule would enable predatory lenders to make loans with triple-digit interest rates, well beyond those normally permitted by New York law. The proliferation of such high-cost loans would likely target and cause the greatest harm to communities most impacted by the current economic crisis—communities of color— and would exacerbate discriminatory lending and wealth-extraction practices that for decades have preyed on Black and Latinx families and small businesses.
“New York State’s laws against predatory lending are among the strongest in the nation, and DFS has worked to vigorously uphold these essential safeguards. The OCC’s ‘true lender’ rule is yet another move by the federal government to dismantle critical consumer protections,” said Superintendent Lacewell. “The OCC has chosen to issue this proposed rule during a global pandemic and economic crisis, when protections against exploitative lending are needed most. DFS calls on the federal government to promote consumers’ interests over those of an industry that has a long history of taking advantage of borrowers in need.”
As the supervisor and regulator of banking and other financial institutions with assets totaling more than $7.3 trillion, the Department is a fierce advocate and enforcer against abusive lending practices, and opposes any federal action that would weaken state consumer protections. New York State is one of 16 states, along with the District of Columbia, that effectively ban payday lending. DFS has strongly enforced the state’s usury law, which limits interest charged by unregulated nonbank lenders to 16% for most consumer loans.
DFS submitted a comment letter to the OCC opposing the proposed rule, which would effectively create a loophole for predatory lenders to do otherwise unlawful business in New York. The letter stresses the importance of New York’s long established prohibitions on high-interest loans—which the proposed rule would allow lenders to bypass—and reaffirms DFS’ commitment to protecting consumers.
The OCC’s proposed rule, announced on July 20, 2020, would determine when a national bank or federal savings association (bank) is the “true lender” in the context of a loan made through a relationship between a bank and a nonbank lender. According to the OCC, the proposed rule would resolve uncertainty regarding the legal framework that applies to such loans. Consumers will ultimately pay the price for this “resolution” in the form of higher interest rate payments, while unregulated nonbanks benefit. The rule would effectively sanction so-called ‘rent-a-bank' or ‘rent-a-charter' schemes that are an end-run around consumer-protective state usury limits on interest rates.
If finalized, the proposed rule could trigger the proliferation of payday lenders, auto title lenders, shadowy online lenders, and other bad actors who will use the loophole provided by the rule to charge astronomical interest rates and exploit the most vulnerable consumers and businesses, particularly for minority and underserved New Yorkers who have been hit hardest by the current crisis. For this reason, DFS calls on the OCC not to enact the proposed rule.