“RENT-A-BANK” RULE PROPOSAL FOR PREDATORY LENDERS DENOUNCED BY NY ATTORNEY GENERAL JAMES

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[Predatory Lending\NY Attorney General James]
Attorney General James: Instead of propping up predatory and exploitative lenders, the federal government should be ensuring every necessary measure is in place to protect our nation’s consumers.”
Photo: Facebook

New York Attorney General Letitia James today co-led a bipartisan coalition of 24 attorneys general in opposing a proposed rule by the Federal Deposit Insurance Commission (FDIC) that would allow predatory lenders to take advantage of the state’s most vulnerable consumers.

In a comment letter to the FDIC, Attorney General James and the coalition urge the commission to keep state interest rate caps — or usury laws — in place on high-interest loans, and reject a new rule that would weaken regulations on payday lenders and other high-cost lending. The FDIC’s proposed rules would enable predatory lenders to circumvent the state caps through “rent-a-bank” schemes — arrangements in which banks act as lenders in name only, passing along their state law exemptions to unregulated, non-bank payday lenders.

“Instead of propping up predatory and exploitative lenders, the federal government should be ensuring every necessary measure is in place to protect our nation’s consumers,” said Attorney General James. “The FDIC’s approval of rent-a-bank schemes will only ensure the cycle of debt continues for New Yorkers and Americans across the country. While this proposed rule undermines New York’s efforts to prevent payday lenders from working in conjunction with big banks, our coalition is fighting back to protect this nation’s most vulnerable consumers.”

States have historically played a critical role in protecting consumers from predatory lending, using rate caps to prevent the issuance of unaffordable, high-cost loans. While federal law provides a carve out from state law for federally-regulated banks, state law continues to protect residents from predatory lending by non-banks, such as payday, auto title, and installment lenders. The new regulations proposed by the FDIC would extend the Federal Deposit Insurance Act exemption for federally-regulated banks to these non-bank debt buyers — a sharp reversal in policy that deliberately evades state laws targeting predatory lending.

In the comment letter — led by Attorney General James, California Attorney General Xavier Becerra, and Illinois Attorney General Kwame Raoul — the multistate coalition argues that the FDIC’s attempt to extend preemption to non-banks conflicts with the Federal Deposit Insurance Act, exceeds the FDIC’s statutory authority, and violates the Administrative Procedure Act.

Last month, Attorney General James also led a bipartisan coalition of attorneys general in sending a comment letter to the Office of the Comptroller of the Currency (OCC), urging the OCC to reject similar rules that would undermine New York’s efforts to allow predatory lenders to circumvent these caps and take advantage of consumers.

Joining Attorney General James in filing today’s comment letter are the attorneys general of California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Tennessee, Vermont, Virginia, Washington, Wisconsin, and the District of Columbia, as well as the Hawaii Office of Consumer Protection.

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