California Attorney General challenges FDIC rule that allows predatory lenders to bypass state interest rate caps
August 22, 2020 – SACRAMENTO – California Attorney General Xavier Becerra, at the head of a coalition of eight attorneys general, has filed a lawsuit challenging the The Federal Deposit Insurance Corporation’s (FDIC) final rule that creates a loophole for predatory lenders to evade state laws that prohibit excessive interest charges. These interest rate caps play a vital role in regulating payday loans and other high-cost loans statewide. Under current federal law, federally insured state chartered banks are exempt from state interest rate caps. The FDIC Final Rule extends these exemptions to any non-bank lender that purchases loans issued by an exempt bank. The final rule virtually invites predatory lenders to “rent a bank” – use a federally insured bank – to do their dirty work of issuing loans with interest rates that exceed state law. bank then transfers to the predatory lender. The complicit bank washes its hands of the usurious loan, the predatory lender escapes the reach of state laws prohibiting such loans, and consumers pay the price.
“California has passed interest rate caps to protect consumers from unreasonable predatory lending. This FDIC rule allows predatory lenders to bypass these critical state laws and trap borrowers in insurmountable debt, ” said Attorney General Becerra. “Tackling financially troubled consumers is bad enough. But giving these predatory lenders the key to evading consumer protection law is despicable. We are suing the FDIC to end this illegal rule before it devastates financially struggling American families. “
States have long played a critical role in protecting their residents from high cost loans. While federal law provides a waiver of state interest rate caps for federally regulated banks, state law continues to protect residents from predatory lending by non-banks such as lenders. payday, auto securities and installment lenders. The FDIC Final Rule extends the Federal Deposit Insurance Act exemption for federally insured state chartered banks to these buyers of non-bank debt, a dramatic expansion that facilitates the deliberate efforts of lenders to evade debt. State laws designed to protect residents from predatory loans.
In the lawsuit, the coalition argues that the FDIC’s final rule conflicts with the federal deposit insurance law, exceeds the statutory authority of the FDIC, and violates the administrative procedure law. Further, the lawsuit claims that the FDIC failed to consider and address the negative effect of its final rule on financial consumer protection by facilitating predatory “rent-a-bank” programs.
Attorney General Becerra is committed to upholding consumer protection, which is why he supported California’s passage of legislation that limits loan interest rates to between $ 2,500 and $ 10,000. $ 36%. Last month, Attorney General Becerra filed a lawsuit against the Federal Office of the Comptroller of the Currency (OCC) challenging an almost identical rule that exempts buyers of high-interest loans issued by a federally chartered bank from rate caps. state interest. Previously, in February 2020, Attorney General Becerra submitted a letter of comment to the FDIC opposing his proposal to pre-empt state usury laws that regulate payday loans and other high-cost loans. In January 2020, Attorney General Becerra submitted a letter of comment opposing the OCC’s proposal to exempt payday lenders and other high-cost lenders from state usury laws. In October 2017, Attorney General Becerra released a statement in support of the Federal Bureau of Consumer Financial Protection (CFPB) payday loan rule. In March 2019, he submitted a comment letter opposing a CFPB proposal to formally delay the implementation of its 2017 pay rule. In addition, Attorney General Becerra filed an amicus brief in support of the plaintiff-consumer in De La Torre v. Cash Call, successfully arguing that the interest rate on the loan may make it ineligible under California law.
Attorneys General for Illinois, Massachusetts, Minnesota, New Jersey, New York, North Carolina and the District of Columbia join Attorney General Becerra in filing the lawsuit.
A copy of the complaint is available here.
Source: CA. MJ