Welcome to Consumer Reports Advocacy

For 85 years CR has worked for laws and policies that put consumers first. Learn more about CR’s work with policymakers, companies, and consumers to help build a fair and just marketplace at TrustCR.org

Consumer Reports criticizes OCC for encouraging “rent-a-bank” lending schemes

OCC issues rule that hurts state efforts to rein in predatory lenders

 WASHINGTON, D.C. – A new rule issued by the Office of the Comptroller of the Currency (OCC) today will make it easier for predatory lenders to evade state laws limiting interest rates by partnering with national banks, according to Consumer Reports.  CR had urged the OCC to rescind the misguided proposal earlier this year.

“Millions of Americans have been hit hard by the collapse of the economy during the pandemic and are prime targets for shady lenders eager to take advantage of their financial difficulties,” said Antonio Carrejo, policy counsel for Consumer Reports.  “Today’s action by the OCC gives predatory lenders the green light to trap consumers in high interest debt by ‘renting-a-bank’ that doesn’t have to abide by state consumer protection laws.”

Carrejo continued, “States have played a critical role in preventing lenders from charging excessive interest rates that make loans impossible to repay and drive borrowers deeper into debt.  This new rule undermines state protections and makes it easier for predatory lenders to exploit vulnerable consumers by charging exorbitant interest rates.”

Rent-a-bank lending schemes typically involve partnerships between a national bank and a non-bank lender marketing payday loans, auto title loans, or auto installment loans.  The bank originates the loan and the high-cost lender manages all other aspects of the transaction, including marketing, reviewing, approving and servicing the loan.  The high-cost lender buys the loan from the bank and provides it with a small percentage for each loan sold.

By originating the loan with a national bank, high-cost lenders take advantage of their partner bank’s authority under federal law to charge higher interest rates – even though the lender approved the loan before the bank originated the loan.

Federal banking regulators, including the OCC, adopted policies to prohibit rent-a-bank lending schemes beginning in the early 2000s after payday lenders used these arrangements to get around state usury caps.  Since that time, numerous states have successfully challenged rent-a-bank schemes in court, which have found that the nonbank lender is the true lender in the partnership since it gains the most financially from each loan.

In a complete reversal, the OCC’s final rule applies a different standard to determine the true lender and preempts state usury laws from applying to nonbank lenders for loans that are considered made by a national bank.  Under the new OCC rule, the national bank will be considered the true lender if it is named as the lender in the loan agreement or funds the loan.  The proposal also undermines other state laws involving licensing and examination for nonbank lenders that partner with national banks.

Laws in at least forty-five states that protect consumers from high-interest nonbank installment loans and other predatory loans could be effectively preempted if the OCC adopts its proposed rule, according to Consumer Reports.  Most recently, California adopted interest rate caps on installment loans of $2,500-10,000 in 2019.  In addition, laws capping interest rates on payday loans in 16 states and the District of Columbia could be at risk if the rule is adopted.