Twenty-five state attorneys general, including New York Attorney General Letitia James, urged Congress to use its authority under the Congressional Review Act ("CRA") to rescind the OCC's "true lender rule."

As previously covered, the OCC adopted in October a rule that makes explicit the circumstances in which a national bank or federal savings association is considered to be the "true lender" in the "context of a partnership between a bank and a third party, such as a marketplace lender."

In a comment letter, the attorneys general stated that the rule would "be exploited" by lenders to circumvent state usury interest-rate caps on high-cost, small-dollar loans and, therefore, enables the use of "rent-a-bank" schemes (i.e., a national bank makes a loan and shortly thereafter sells the loan to a nonbank entity to allow the nonbank to avoid becoming subject to state usury laws). The attorneys general also stated that the OCC's adoption of a rule that "redefine[s]" the definition of "true lender" is contradictory to the nature of the determination by a court of a loan's true lender, which involves the court's evaluation of the substance of the transaction, not just its form.

The attorneys general also stated that even though some of them have filed a lawsuit against the OCC for promulgating the rule, because litigation may take years to resolve, Congress should invalidate the rule.

Primary Sources

  1. NYAG Press Release: Attorney General James Urges Congress to Rescind Rule Allowing Predatory Lenders to Take Advantage of Consumers
  2. NYAG Comment Letter: Use of Congressional Review Act to Invalidate OCC True Lender Rule That Facilitates Predatory Lending

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