The first use of the Congressional Review Act (CRA), the process by which Congress can overrule certain executive regulations by a majority vote without the possibility of obstruction, will come today, as the Senate plans vote to overturn the Trump administration’s rule allowing more methane, a harmful greenhouse gas, to be released into the atmosphere. The CRA resolution on methane, which bipartisan Senate support, is likely to pass, which is good news for the environment and for reducing emissions. But the fate of five other CRA resolutions is much more uncertain.
Democrats were quite nonchalant on using the CRA tool, dropping dozens of potential Trump-era rule cancellations in favor of winning their considerations for just six. The law’s timetable sets mid-May as the deadline for passing all CRA resolutions on the old rules of administration, leaving Congress little time to act. A high level resolution obtains a Senate hearing today, and that will go a long way in determining whether he will have time for a speaking vote. Millions of consumer loan borrowers should take note, because if they have to pay regulated or shockingly high interest rates, the balance will be on the line.
the rule in question is known as the “real lender” rule, although critics call it the “bogus lender” or the “rent-a-bank” rule. Established by the Office of the Comptroller of the Currency (OCC), the rule gives often predatory non-bank lenders a way around state interest rate caps. But more than half of all states restrict the annual percentage rate on consumer loans (typically to 36%), under this rule, if loans are primarily laundered through a federally chartered bank, lenders can escape these limits rate of interest and charge customers what they want with payday loans.
OCC’s oversight of domestic banks is a joke, and even if it bothered to sanction banks for leasing their charters from expensive lenders, the penalty would be little more than the cost of doing business.
The National Bank Act of 1864 pre-empted state usury ceilings for domestic banks not resident in that state. But this OCC rule perverts this logic for the sake of reason. The “rent-a-bank” generally has no interest in the consumer loans in question. As long as the banks have their name on the loan agreement, they become the “real” lender, regardless of their role (or lack thereof) in issuing the loan. This practice is carried out solely for the purpose of escaping interest rate ceilings.
It is based on an absurd doctrine that loans are “valid when made” by the bank and can then be transferred to anyone, which the OCC has previously referred to as “long-standing law” and of “well-established law”. Apart from the fact that this alleged doctrine does not appear anywhere in the historical record, and was invented just to facilitate this high cost loan. The whole thing is a trick, a loophole, brought by Donald Trump’s OCC.
The Supreme Court ruled in 2015 that such schemes were illegal. As a result, the true executive lender rule allows this evasion of state usury ceilings in the name of “clarifying” the law for the judiciary. Now the third branch, Congress, weighs. Last month, Senator Sherrod Brown (D-OH) and his colleagues presented the CRA resolution to overturn the bogus lender rule. The rule “gutters state consumer protection laws and allows unregulated payday loans across the country,” Brown said in a statement last month.
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The battle lines over overturning this rule have been predictable, yet fascinating to watch. On one side are 138 academics specialized in consumer law and banking law, and a bipartite group of 25 state attorneys general, including Republican GAs in Arkansas, Nebraska, and South Dakota, all states with interest rate caps. Seven of these State GAs have litigation go against the real lender rule. One of those GAs, Josh Stein of North Carolina, will testify at Wednesday’s hearing.
The public is also on the side of rent-a-bank dumping; Nebraska voters broke the interest rate cap last year with 83% of the votes, and probably doesn’t want to see it so easily evaded. “Congress faces a clear choice: protect consumers from abusive triple-digit interest rates or protect profits from predatory millionaire lenders who exploit vulnerable people during this pandemic,” said Jeremy Funk of the government watchdog. Accountable.US.
On the other side are the House Republicans, who rushed passage of the real lender rule in a letter to regulators last year. In the weeks following that letter, signatories received more than $ 200,000 from industry trade groups supporting the rule, according to Accountable.US research.
The OCC also weighed aggressively. Brian brooks, the former interim monitor who finalized the real lender rule, will also testify on Wednesday. More surprising is a letter to the directors of the banking committee of the current Acting Controller, career civil servant Blake Paulson, justifying the rule. Biden has still to make his own choice to lead OCC, so for now Paulson is doing the honors, and he’s active lobbying for this deregulation rule that will cost millions of people high interest on their loans.
Paulson’s argument is weak. He says in the letter that the OCC rule has simply provided “legal and regulatory certainty” for banks to navigate partnerships with third parties. It is true that making it easier for predatory lenders to rip off clients is kind of a certainty, but that doesn’t mean it is desirable. Paulson adds that the real lender would still be required to comply with all federal loan rules, even if they sold them, and says that protects against a harmful relationship with a bank. “The OCC will not hesitate” to “fix the loopholes” and “protect consumers,” writes Paulson.
It might be heartwarming if national banks were to really worry about an aggressive regulator looking down on them. Unfortunately, their regulator is the OCC, one of the most flexible regulators in the entire federal government. OCC’s oversight of domestic banks is a joke, and even if it bothered to sanction banks for leasing their charters from expensive lenders, the penalty would be little more than the cost of doing business.
The downsides of allowing bank leasing programs and hoping the OCC will crack down on them are already evident. As consumer advocates explain in a fact sheet, World Business Lenders, a non-bank organization, launders loans through the national bank Axos and uses it to justify a loan of $ 67,000 in a restaurant 268% interest. Other WBL loans have leads to consumer foreclosures. CURO, also known as Speedy Cash, sells loans with up to 179% interest by channeling them through the OCC-regulated Stride Bank. If OCC wanted to prevent this activity, it did not need to pass a rule to grant “certainty” to its banks; he could have simply engaged in the actual execution.
But that’s not what the OCC does. Indeed, the agency defended the world’s business lenders with a 2019 amicus brief in a Colorado case, promoting his historically inaccurate “valid when made” argument. And that’s quite normal for an agency that exists primarily as an advocate for banks and financiers.
This is an agency that used its power of preemption during the financial crisis to block state laws against predatory mortgage loans. During the financial crisis, former bank lobbyist (and current Chairman of Citigroup) John Dugan headed the agency and barely sanctioned a large bank for a mountain of fraud and abuse. the a myriad of Wells Fargo scandals are a function of the fact that its main regulator, the OCC, does essentially nothing in response. These days the agency spends its time donating shady crypto companies national banking charters.
A very convincing argument can be made that it should no longer be an OCC, and its open lobbying for high interest loans and circumvention of state laws provide powerful testimony to this effect. We don’t have national charters for airlines, appliance makers, or sausage makers; a accident of history gave us national banks rather than state chartered banks. It was a model prepared for corruption from the start. Even when the OCC had relatively good leaders, the culture of the agency undermined its ability to do good work. Thomas Curry, one of those relatively good leaders, is surprisingly enough in favor of abolition, which should tell you something about his faith in someone who can right the ship.
The first step in sterilizing the OCC is for Congress to resist it by overturning this blatantly ridiculous rule. At present, however, it is unclear whether there are 50 votes in the Senate to pass the CRA resolution. The hearing will help clarify the matter, but with the choices so difficult between predatory lenders and the public, it’s a wonder a Democrat needs to think about it for a second.