This week, Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, gave the following statement on the House floor urging the passage of Senate Joint Resolution 15, a resolution that invalidates the Trump Administration’s “True Lender” rule. The rule passed the House by a bipartisan vote of 218-208.
Madam Speaker, I rise today in support of Senate Joint Resolution 15, a resolution to invalidate the Office of the Comptroller of the Currency’s (OCC) so-called “True Lender” rule under the Congressional Review Act. This resolution would end a dangerous Trump-era rule that would allow predatory lenders to evade state usury laws and target consumers with high interest-rate loans of 150% or higher through sham partnerships with banks.
I would like to thank Representative Garcia from Illinois for introducing the House companion to this measure, and for his leadership in fighting to protect consumers from predatory lending schemes.
My Committee has held several hearings that have exposed the consumer harm that results from these “rent-a-bank" schemes and explored how the Trump Administration’s harmful rule erodes consumer protections. The OCC’s rule undoes centuries of case law that ensured that nonbank financial institutions were subject to state interest rate caps when they partnered with banks so long as they held the primary economic interest in a consumer loan. Trump’s OCC allowed nonbanks to launder their loans through OCC-chartered banks, as long as the bank is listed on the loan origination documents, effectively allowing nonbanks to ignore state usury laws.
Simply put, before this Trump-era rule was finalized, if a nonbank in California - which has an interest rate cap of say 36% - wanted to make a loan to a customer in California, the nonbank can’t charge more than 36%. OCC’s “True Lender” rule turns this commonsense legal doctrine on its head.
What the Trump-era rule says is that the nonbank can now partner with a national bank that is based in say, Utah-- which doesn’t have an interest rate cap-- to now legally charge virtually any interest rate to the consumers in California. This is true even if the bank in Utah has done nothing but put its name on the loan paperwork and intends to immediately transfer the loan to the nonbank in California. We have seen interest rates of more than 150% charged to consumers in this way .
The Committee’s work has shone a spotlight on the heartbreaking stories of the harm that this rule has caused to consumers and small business owners. Let me give you a real-world example of a Black-owned small business that was harmed by one of these “rent-a-bank" schemes authorized by Trump’s OCC. A recent news report detailed the case of Carlos and Markisha Swepson, who were the owners of Boulevard Bistro, a restaurant in Harlem, New York. As they told NBC News, they took out several business loans for $67,000 and were charged a whopping 268% APR. For all intents and purposes, their lender was World Business Lenders, a nonbank lender that has a partnership with Axos, a bank in New York state. Even though the loan was made by World Business Lenders, because Axos Bank’s name was on the loan documents, the nonbank could bypass the New York usury limit of 25% APR. Due to the pandemic they are now behind on their loan payments. They are now facing foreclosure proceedings filed by World Business Lenders on a home they own that acts as collateral for the high-interest rate loans. If not for Trump’s rule, the Swepsons would have only been charged a 25% interest rate and would probably not be facing financial ruin.
If Congress lets this Trump-era rule stand, these kinds of predatory, triple digit interest rate loans will continue to be made through these kinds of rent-a-bank schemes, and lenders will continue to take advantage of small business owners and other consumers desperate to stay afloat.
Additionally, let’s not forget that during the last election Nebraska joined 45 states and the District of Columbia that have already passed legislation to limit usury rates for small-dollar installment loans. The Trump-era “True Lender” rule is a back-door way for nonbanks to charge triple-digit interest rates on loans at the expense of consumers in states where voters turned out to pass interest rate cap laws. No wonder some call this the “fake lender” rule.
For these reasons, I urge my colleagues to support this bill, and for those that don’t understand what we were talking about, when we are talking about the “True Lender” rule, I think I have laid it out in such a way that you understand that this is predatory and this is a rip off. For these reasons, I urge my colleagues to support this resolution.