OAKLAND – California Attorney General Rob Bonta joined with 20 attorneys general in urging the Federal Deposit Insurance Corporation, the Federal Reserve and the Office of the Comptroller of the Currency (collectively, “Federal Bank Regulators”) to disallow make bank leasing programs explicit in their forthcoming guidelines for banks on risk management when engaging with third parties. Predatory lenders use bank rental systems in an attempt to circumvent state laws and charge borrowers interest rates that exceed state limits. In California, for example, where interest rates are capped at 36% for consumer loans between $ 2,500 and $ 10,000, payday lenders have attempted to partner with banks to lease the charter. bank and charge an interest rate of 100% or more. To discourage the proliferation of this predatory activity, federal banking regulators should voice their strong disapproval of bank leasing programs.
“Predatory loans and illegal bank rental programs have no place in our financial system” said Attorney General Bonta. “I join with 20 attorneys general in calling on federal bank regulators to take a stand against this exploitative practice and protect troubled borrowers from insurmountable debt.”
In bank leasing programs, a non-bank lender seeks to avoid government interest rate caps by engaging a bank that is not subject to those rate caps to act as a “lender” for its purposes. loans by name only. In these schemes, the bank acts as a mere middleman, “selling” the loan to the non-bank lender, and never has a real financial interest in the loan. Predatory lenders use these schemes to charge borrowers exorbitant interest rates that are illegal under California law.
While federal bank regulators have previously indicated their disapproval of this evasive tactic, under the Trump administration, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (OCC) issued rules that made the programs easier. bank rental. California is currently leading a multi-state coalition in lawsuits challenging these rules as illegal under the Administrative Procedure Act and supported the recent congressional resolution revoking the OCC’s “real lender” rule, which also facilitated these schemes. In the comment letter, the coalition argues that the failure of federal banking regulators to disavow bank leasing programs in their proposed guidelines invites continued abuse by predatory lenders. The coalition strongly urges them to reject these patterns in their final guidelines.
Attorney General Bonta joins Attorneys General of Colorado, Connecticut, Hawaii, Illinois, Iowa, Maine, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Virginia, Washington, District of Columbia, and the state financial regulators of Colorado, Hawaii, Maine and L ‘Illinois by filing the letter of comment.
A copy of the letter is available here.