OCC’s ‘bogus lender’ rule threatens to hurt veterans



Retired Army Col. Paul Kantwill is the founding Executive Director of the Institute for the Rule of Law at Loyola University Chicago School of Law. Previously, he headed the Office of Membership Affairs of the Consumer Financial Protection Service. He had a 25-year career as an active officer in the United States Army and served in Afghanistan and the Persian Gulf.

This September will mark the 20th year that our country has been at war. Sadly, as the war in Afghanistan draws to a close, the campaign against American veterans by predatory lenders continues.

Members of the service have long been the target of unscrupulous lenders. Congress passed the Military Lending Act in 2006, and its 36% cap rate has been incredibly successful. Once service members leave active duty, however, they lose the protections of the law and must rely on state interest rate caps to protect them from predatory lenders.

But the 45 states which have ceiling rates are threatened by a to reign promulgated last year by the Office of the Comptroller of the Currency, or OCC. This rule, shockingly, protects predatory lenders who use evasive ploys to circumvent state laws.

Congress has a short period of time to use a Congressional Review Act resolution to overturn this reckless rule, and lawmakers should listen to the 375 nonprofits (including Blue star families and Minority Veterans of America), 138 academics and a bipartisan group of 25 state attorneys general (including Arkansas, Nebraska and South Dakota) calling for the rule to be repealed.

Efforts to stop usurious loans date back to the Bible and the Hammurabi Code, and are strongly supported by the American public. Last month my home state of Illinois passed a 36% rate cap with strong bipartisan support. Every time this issue is raised on the ballot, it has been passed with large bipartisan majorities, even in the Red States. In November 2020, 83% of voters in Nebraska were in favor of a 36% rate cap. Similar recent votes in Arizona, Colorado, Montana and South Dakota have brought these states together in a group including Arkansas, Georgia, New York, North Carolina and West Virginia protecting their populations from the worst. effects of predatory loans.

Fraud is as old as the usury laws. But under two centuries of jurisprudence and United States Supreme Court case law, courts can look beyond the fine print to the truth and substance of a disguised usurious transaction. One of these detection methods, called “the real lender doctrine”, has been used for about two decades to prevent payday lenders from simply putting a bank’s name on the contract (banks are exempt from the limits on payday loans. state rate), and thus escape prohibiting loans at an annual percentage rate of 400%.

But the OCC rule overturns the real lender doctrine and allows predatory lenders to hide behind a bogus lender – an obscure, dishonest bank that has little to do with the lending program. The rule says that the only thing that matters is putting a bank’s name on the loan agreement, even if the predatory lender is the real lender.

Thus, the OCC rule protects “rent-a-bank” programs that threaten veterans. A disabled US Army retiree living on a fixed income was recently trapped in a $ 1,500 loan at 160% interest, even though a new California law caps interest rates at 36% plus the rate federal funds. A large percentage of his monthly payments went to pay off the loan, and like most vulnerable consumers with high-cost loans, he fell into a cycle of debt. The lender, operating under a California license before the rate cap was enacted, argued exactly what the OCC rule would allow: because an obscure name of a Utah bank was on the documents of loan, the unreasonable transaction was a bank loan exempt from California law.

As the pandemic continues, usurious bank rental loans are compounding the financial distress of veterans, not alleviating it. Another disabled fixed income veteran, a Hope Credit Union member with no history of high cost loan use, took out one of these “rent-a-bank” loans. Less than a year later, he had six payday loans in addition to the bank loan. Two days after receiving his $ 1,200 stimulus check, five lenders mined $ 1,004, with the original bank’s lease lender getting the largest payment. This is not where Congress wanted the COVID-19 stimulus money to go.

These two disturbing examples are just a small sample of the damage caused by these products. Other veterans and military family members continue to complain to the Consumer Financial Protection Bureau about high cost loans the same lenders who engage in “rent-a-bank” programs to evade state laws.

Veterans who fought for their country deserve better. Congress should support the resolution overturning the “bogus lender” rule to protect all consumers and defend the rights of voters and states to end predatory lending.

– The opinions expressed in this editorial are those of the author and do not necessarily reflect the views of Military.com. If you would like to submit your own comment, please send your article to [email protected] for review.

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