May 11, 2021

Brown Urges Senate Colleagues to Support Overturning OCC's Trump-era Rule Encouraging Predatory Rent-a-Bank Schemes

WASHINGTON, D.C. – U.S. Sen. Sherrod Brown (D-OH), Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, today headed to the Senate floor to urge his colleagues to support his legislation to repeal the Trump Administration’s so-called True Lender Rule through the Congressional Review Act. The OCC’s rule allows predatory lenders to evade state interest rate caps and charge consumers outrageous interest on payday and other loans. Senator Brown introduced the legislation with Senator Van Hollen (D-MD), a member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, and Representative Chuy Garcia (D-IL4) in March.

Sen. Brown’s remarks, as prepared for delivery, follow:

The vote we’re about to take on this resolution is a bipartisan opportunity for us to show the people we serve that we’re on their side.

States all over the country – red and blue states, states in the South and the Midwest and on the coasts – have all recognized that people need protections from predatory lenders.

That’s why nearly every state and the District of Columbia have all passed laws to limit the amount of interest that can be charged on payday and other loans.

In the late 1990s, payday lenders were desperate to find a way to evade state laws that limited them from charging exorbitant interest rates that trap people in a cycle of debt they can’t get out of, no matter how hard they work.

They came up with what the OCC called “rent-a-charter” – what we now know as the “rent-a-bank” scheme.

Because banks are generally not subject to these state laws, payday lenders funneled their loans through a small number of willing banks. It looked like the banks were making the loans, when it was really the payday lenders.

Federal regulators, Republicans and Democrats, saw through this ruse. And they cracked down.

Under both President Bush and President Obama, the OCC and FDIC shut down a series of these schemes by payday lenders and banks.

States from across the country also stepped in to protect their residents.

Georgia, West Virginia, Ohio, Pennsylvania, New York, Maryland, Montana, South Dakota, Colorado, Illinois, Virginia, Nebraska – all passed new laws and regulations to either stop these schemes, or to cap interest rates on payday loans at 36 percent – still a very high number that will make any company plenty of money.

Several other states, including California and my home state of Ohio, also passed laws to limit the interest that can be charged on consumer loans.

These new laws passed with overwhelming, bipartisan support.

More than 75 percent of voters in Nebraska and South Dakota supported the ballot initiatives to cap interest rates on payday loans.

In recent years, new financial technology companies have emerged that partner with banks to offer responsible small-dollar loans at more affordable rates.

But we also have a separate group of online payday lenders resurrecting the same old rent-a-bank scheme to offer abusive, high-interest loans.

They aren’t even attempting to hide it.

One online lender recently told its investors that it would get around California’s new law by making loans through “bank sponsors that are not subject to the same proposed state level rate limitations.”

Another said, “There’s no reason why we wouldn’t be able to replace our California business with a bank program.”

Given the broad, bipartisan support for these laws, we all hoped that the Trump OCC would take action and crack down on these schemes – schemes that have been rejected by voters and legislatures over and over, in state after state.

But last year, the OCC issued what’s known as the True Lender Rule, overruling voters of both parties and giving a free pass to these abusive rent-a-bank schemes.

Now, a broad, bipartisan coalition is asking Congress to overturn the OCC’s harmful True Lender Rule.

That support includes:

·       credit unions,

·       state bank regulators appointed by members of both parties,

·       state attorneys general of both parties,

·       small business groups,

·       the Military Officers Association of America,

·       the National Association of Evangelicals, the Southern Baptist Convention, and other members of the Faith in Just Lending Coalition.

That coalition wrote to Congress, quote:

“Predatory payday and auto title lenders are notorious for exploiting loopholes in order to offer debt-trap loans to families struggling to make ends meet. The OCC’s ‘True Lender’ rule creates a loophole big enough to drive a truck through.”

We know why these commonsense laws that our states passed are popular, and enjoy bipartisan support in states across the country. People don’t want abusive lenders to prey on them, their loved ones, or their neighbors.

Some issues that come before the Senate are complicated, they divide people, there are thorny nuances to consider. This isn’t one of them.

It’s simple: Let’s protect the people we serve.

I urge my colleagues to support the resolution to overturn this rule.