September 3rd, 2020<\/p>\n
National Community Reinvestment Coalition
\n740 15th St. NW
\nWashington, DC 20005<\/p>\n
\u00a0<\/em>Brian Brooks Re: Comments on Proposal “National Banks and Federal Savings Associations as Lenders” Docket ID: OCC-2020-0026 RIN 1557-AE97<\/strong><\/p>\n Honorable Acting Comptroller Brooks:<\/p>\n The undersigned respectfully submit this comment regarding the proposed rule from the Office of the Comptroller of the Currency (the “OCC”) to determine when a national bank or federal savings association is the “true lender” in a partnership between a bank and a third party.<\/p>\n We strongly oppose the proposal because if adopted, it would introduce or expand the availability of high-cost credit in our communities, with the inevitable result of harming the financial health of vulnerable households while undermining the ability of the courts to enforce state laws.<\/p>\n The “true lender” doctrine allows a court to use its judgment when probing the substance of a partnership between a bank and a non-bank lender that may exist to evade state law. The doctrine works in part because of its flexibility. Courts can consider various factors to determine which entity is the actual, and not merely the nominal, lender in the configuration. It is a legal concept endowed with the agility to keep pace with innovation in the marketplace.<\/p>\n The OCC’s proposal, by contrast, would apply a form over function test to regulation, with the effect of thwarting the ability of courts to use a totality-of-the-circumstances approach to their review. In its proposed rule, the OCC puts forward a simple two-part test that preempts state oversight if the loan was valid when made. Notably, if such a test were applied to the marketplace today, the OCC would endorse all existing “rent-a-bank” relationships to support preemption.<\/p>\n Some states have used the longstanding “true lender” test to initiate lawsuits against non-banks that use rent-a-bank schemes. For example, the District of Columbia Attorney General Karl Racine recently filed a lawsuit against online lender Elevate Credit and its two bank partners. It applied the “true lender” test to support its claim that the partnership violated the District’s Consumer Protection Procedures Act.<\/p>\n According to the complaint, Elevate Credit offered a line of credit and an installment loan bearing rates of between 99% in partnership with Republic Bank & Trust (Kentucky) and 251% with FinWise Bank. Racine added that 2,551 DC residents took out credit, even though the rates were up to 42 times the District’s respective interest rate caps. To bring his complaint, Racine has asserted that Elevate is the “true lender,” and thus not deserving of the right to avoid DC’s interest rate caps.<\/p>\n Loan products with terms such as these are not unique to Elevate Credit, and in fact, other banks engage in similar partnerships.<\/p>\n If the OCC moves forward with a policy that conflicts with common law standards of what it means to be a “true lender,” it will undermine the power of states to enforce consumer protection laws within their jurisdictions. Also, there will likely be state legal challenges to any federal action, which will divert regulatory resources to litigation instead of protecting consumers.<\/p>\n We know from the past how the OCC’s “true lender” proposal would impact credit markets. In the late 90s and early 2000s, a handful of banks established evasive partnerships with scores of payday lenders. With the imprimatur of federal regulators, member banks made their charters available to payday lenders. Under cover of preemption, banks participated in schemes that made credit possible at usurious rates. Moreover, as defined by the average cost on a store-by-store basis, prevailing rates were highest in states where payday lenders relied on bank partnerships.<\/p>\n In the proposed rulemaking, the OCC contends that state ‘true lender’ tests create “uncertainty about the legal framework that applies to loans” made through partnerships. Still, it provides no empirical data to support that statement. By law, the OCC must seek evidence, along with other precedents, to provide a basis for the expansion of its preemption power, and it must also consult with the Consumer Financial Protection Bureau when making such a “case-by-case” determination. The OCC has not met those procedural requirements.<\/p>\n Of course, legal issues aside, there is also a question of timing. When so many households face economic uncertainty, is there an urgency to push the boundaries on the availability of high-cost credit? If we know that a racial wealth gap exists in our country, should regulators hasten to let high-cost lenders find more customers for their wealth-extracting debt?<\/p>\n For centuries, institutions have raised concerns about the lending of money at unreasonably high rates of interest. The idea of usury \u2013 and the need to create laws to thwart it \u2013 reaches back to civilization’s formative stages.<\/p>\n Given the demonstrated willingness of some non-bank lenders to look for loopholes in any rule, leaving the “true lender” doctrine to the courts makes the most sense. Consumers will fare better if the federal banking regulators leave the doctrine alone.<\/p>\n We urge the OCC to withdraw its proposal.<\/p>\n Sincerely,
\n<\/em>Acting Comptroller of the Currency
\n400 7th St SW
\nWashington, DC 20219<\/p>\n
\nJesse Van Tol
\nCEO
\nNational Community Reinvestment Coalition<\/p>\nAnd the following organizations:<\/h4>\n