OCC’s ‘bogus lender’ rule threatens to hurt veterans
Retired Army Col. Paul Kantwill is the founding Executive Director of the Institute of the Rule of Law at Loyola University Chicago Law School. He previously headed the Bureau of Service Membership at the Consumer Financial Protection Bureau. He had a 25-year career as an active duty 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 ends, the campaign against American veterans by predatory lenders continues.
Service members have long been targeted by unscrupulous lenders. Congress passed the Military Loans Act in 2006, and its 36% rate cap has been incredibly successful. However, once the military leaves active service, 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 who have rate caps 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 thoughtless rule, and lawmakers should listen to the 375 nonprofits (including Blue Star Families and Minority Veterans of America), 138 scholars and a bipartisan group of 25 state attorneys general (including Arkansas, Nebraska and South Dakota) urging the rule to be repealed.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. Whenever this issue is raised on the ballots, it is 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 into a group including Arkansas, Georgia, New York, North Carolina, and West Virginia, which protect their populations from the worst effects of predatory loans.
Escapes are as old as the laws of usury. But under two centuries of jurisprudence and United States Supreme Court Precedent, courts can look beyond the fine print to uncover 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 rate caps. States), and thus evade the protections of the State which prohibits loans at an annual rate of 400%.
But the OCC rule flips the real lender doctrine and allows predatory lenders to hide behind a bogus lender – an obscure, rogue 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 the “bank rental” systems that threaten veterans. A disabled US Army retiree living on a fixed income was recently trapped on a $ 1,500 loan at 160% interest, even though a new California law caps interest rates at 36% more the federal funds rate. Much of his monthly benefit was used to pay off the loan, and like most vulnerable consumers resorting to high-cost loans, he fell into a cycle of debt. The lender, operating under a California license before the rate cap was passed, argued exactly what the OCC rule would allow: As the name of an obscure Utah bank was on the loan documents, the ineligible transaction was a bank loan exempt from California law.
As the pandemic continues, usurious bank lease 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 using high-cost loans, took out one of these “bank rental” type loans. Less than a year later, he had six payday loans in addition to the bank rental loan. Two days after receiving his $ 1,200 stimulus check, five lenders mined $ 1,004, with the original bank lease lender taking the largest payment. This is not where Congress predicted 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 “bank rental” schemes 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 uphold the rights of voters and states to stop 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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