Attorney General Tong Opposes Trump Administration Proposal Allowing Predatory Lenders to Take Advantage of Connecticut’s Most Vulnerable Communities
(Hartford, CT) – Attorney General William Tong has joined a coalition of 24 attorneys general in objecting to a proposed Trump Administration rule that would undermine Connecticut’s efforts to prevent predatory lenders from taking advantage of the states’ most vulnerable consumers. The proposed rule would enable predatory lenders to charge high interest rates on loans and bypass state interest rate caps already in place, and is part of a systematic, coordinated assault on state usury laws.
In a comment letter submitted to the Office of the Comptroller of the Currency (OCC), Attorney General Tong and the coalition urge the OCC to rescind the proposed rule that would enable predatory lenders to circumvent these caps through “rent-a-bank” schemes — arrangements in which heavily regulated national banks act as lenders in name only for the express purpose of enabling payday lenders and other non-banks to conspicuously evade state consumer protection laws.
“This proposed rule would leave Connecticut borrowers vulnerable to predatory practices during the worst financial crisis in recent times,” Attorney General Tong said. “We cannot allow these lenders to take advantage of hardworking Americans and will continue to fight these proposed changes and protect consumers.”
Under the federal National Bank Act, national banks that are licensed and regulated by the OCC are permitted to charge interest on loans at the maximum rate permitted by their “home” state, even in states where that interest rate would violate state usury laws. The ability to preempt state usury laws in this way is a privilege granted only to national banks because they are subject to extensive federal oversight and supervision.
For years, non-bank entities have attempted to partner with national banks to take advantage of these banks’ special privileges and to offer ultra-high-rate loans in states where such loans are forbidden. Much to the dismay of non-bank lenders and their national bank partners, courts in Connecticut and elsewhere have examined these lending relationships with exacting scrutiny and concluded that the national bank is not the “true lender” of the loan — thus, state-law usury caps apply to the non-bank lenders.
Under the new regulations proposed by the OCC, courts would be prevented from engaging in any such inquiry so long as the national bank is either named as the lender on loan documents or the bank initially “funds” the loan. Further, the new proposed rule would allow the bank to instantly sell the loan and never take any meaningful risk on it. This rigid approach will provide an advantage to only banks and predatory lenders and will do so at the expense of hardworking and unsuspecting consumers.
In the comment letter — led by New York Attorney General Letitia James, Minnesota Attorney General Keith Ellison, and North Carolina Attorney General Josh Stein — the states object to the proposed rule, arguing that it stands in direct conflict with the National Bank Act and the Dodd-Frank Act, exceeds the OCC’s statutory authority, and violates the Administrative Procedure Act. Further, Congress has clearly rejected legislation to expand the National Bank Act preemption to non-banks, further undermining the OCC’s attempt to rewrite federal law to suit its extreme policy preferences.
Joining Attorneys General Tong, James, Ellison, and Stein in sending the comment letter to OCC are the attorneys general of California, Colorado, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New Mexico, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, Wisconsin, and the District of Columbia, as well as the Hawaii Office of Consumer Protection.