The OCC “True Lender” rule will allow lenders to evade state consumer protections

September 3rd, 2020

National Community Reinvestment Coalition
740 15th St. NW
Washington, DC 20005

 Brian Brooks
Acting Comptroller of the Currency
400 7th St SW
Washington, DC 20219

Re: Comments on Proposal “National Banks and Federal Savings Associations as Lenders” Docket ID: OCC-2020-0026 RIN 1557-AE97

Honorable Acting Comptroller Brooks:

The undersigned respectfully submit this comment regarding the proposed rule from the Office of the Comptroller of the Currency (the “OCC”) to determine when a national bank or federal savings association is the “true lender” in a partnership between a bank and a third party.

We strongly oppose the proposal because if adopted, it would introduce or expand the availability of high-cost credit in our communities, with the inevitable result of harming the financial health of vulnerable households while undermining the ability of the courts to enforce state laws.

The “true lender” doctrine allows a court to use its judgment when probing the substance of a partnership between a bank and a non-bank lender that may exist to evade state law. The doctrine works in part because of its flexibility. Courts can consider various factors to determine which entity is the actual, and not merely the nominal, lender in the configuration. It is a legal concept endowed with the agility to keep pace with innovation in the marketplace.

The OCC’s proposal, by contrast, would apply a form over function test to regulation, with the effect of thwarting the ability of courts to use a totality-of-the-circumstances approach to their review. In its proposed rule, the OCC puts forward a simple two-part test that preempts state oversight if the loan was valid when made. Notably, if such a test were applied to the marketplace today, the OCC would endorse all existing “rent-a-bank” relationships to support preemption.

Some states have used the longstanding “true lender” test to initiate lawsuits against non-banks that use rent-a-bank schemes. For example, the District of Columbia Attorney General Karl Racine recently filed a lawsuit against online lender Elevate Credit and its two bank partners. It applied the “true lender” test to support its claim that the partnership violated the District’s Consumer Protection Procedures Act.

According to the complaint, Elevate Credit offered a line of credit and an installment loan bearing rates of between 99% in partnership with Republic Bank & Trust (Kentucky) and 251% with FinWise Bank. Racine added that 2,551 DC residents took out credit, even though the rates were up to 42 times the District’s respective interest rate caps. To bring his complaint, Racine has asserted that Elevate is the “true lender,” and thus not deserving of the right to avoid DC’s interest rate caps.

Loan products with terms such as these are not unique to Elevate Credit, and in fact, other banks engage in similar partnerships.

If the OCC moves forward with a policy that conflicts with common law standards of what it means to be a “true lender,” it will undermine the power of states to enforce consumer protection laws within their jurisdictions. Also, there will likely be state legal challenges to any federal action, which will divert regulatory resources to litigation instead of protecting consumers.

We know from the past how the OCC’s “true lender” proposal would impact credit markets. In the late 90s and early 2000s, a handful of banks established evasive partnerships with scores of payday lenders. With the imprimatur of federal regulators, member banks made their charters available to payday lenders. Under cover of preemption, banks participated in schemes that made credit possible at usurious rates. Moreover, as defined by the average cost on a store-by-store basis, prevailing rates were highest in states where payday lenders relied on bank partnerships.

In the proposed rulemaking, the OCC contends that state ‘true lender’ tests create “uncertainty about the legal framework that applies to loans” made through partnerships. Still, it provides no empirical data to support that statement. By law, the OCC must seek evidence, along with other precedents, to provide a basis for the expansion of its preemption power, and it must also consult with the Consumer Financial Protection Bureau when making such a “case-by-case” determination. The OCC has not met those procedural requirements.

Of course, legal issues aside, there is also a question of timing. When so many households face economic uncertainty, is there an urgency to push the boundaries on the availability of high-cost credit? If we know that a racial wealth gap exists in our country, should regulators hasten to let high-cost lenders find more customers for their wealth-extracting debt?

For centuries, institutions have raised concerns about the lending of money at unreasonably high rates of interest. The idea of usury – and the need to create laws to thwart it – reaches back to civilization’s formative stages.

Given the demonstrated willingness of some non-bank lenders to look for loopholes in any rule, leaving the “true lender” doctrine to the courts makes the most sense. Consumers will fare better if the federal banking regulators leave the doctrine alone.

We urge the OCC to withdraw its proposal.

Jesse Van Tol
National Community Reinvestment Coalition

And the following organizations:

National Organizations

Color of Change; Oakland, CA 94612

Consumer Action; Washington, DC 20005

Credit Builders Alliance; Washington, DC 20006

The National Association for the Advancement of Colored People; Baltimore, MD 21215

The Small Business Majority; Washington, DC 20005

UnidosUS; Washington, DC 20002


State and Local Groups

Affordable Housing Alliance; Neptune, New Jersey 07753

Amarillo Area Black Chamber of Commerce; Amarillo, TX 79116

Association for Neighborhood and Housing Development (ANHD): New York, NY 10004

Banana Kelly Community Improvement Association; Bronx, NY 10459

Bronx Legal Services; Bronx, NY 10460

Buffalo Urban League; Buffalo, NY 14203

California Association for Micro Enterprise Opportunity; San Francisco, CA 94102

California Coalition for Rural Housing; Sacramento, CA 98514

California Reinvestment Coalition; San Francisco, CA 90033

California Resources and Training; Oakland, CA 94612

CASA of Oregon; Sherwood, OR 97140

Center for Fair Housing; Mobile, AL 36618

Center for LGBTQ Economic Advancement & Research; San Francisco, CA 94103

CCCS of Greater Greensboro; Greensboro, NC 27401

Children’s Service Council; Lauderhill, FL 33319

Columbus Empowerment Corporation; Columbus, OH 43205

Community Development Corporation of Tampa; Tampa, FL 33610

Community Development Network of Maryland; Baltimore, MD 21203

Community First Fund; Lancaster, PA 17602

Communities United for Action; Cincinnati, OH 45223

Community Housing Development Corporation; Richmond, CA 94801

Delaware Community Reinvestment Action Council; Wilmington, DE 19805

Economic Growth Corporation; Rock Island, IL 61201

Empire Justice Center; Rochester, NY 14614

Fair Finance Watch; Bronx, NY 10458

Fair Housing Center of Central Indiana; Indianapolis, IN 46204

Fair Housing Center of Metropolitan Detroit; Detroit, MI 48213

Fair Housing Center of Southwest Michigan; Kalamazoo, MI 49007

Financial Pathways of the Piedmont; Winston-Salem, NC 27106

Friends of the North Country; Plattsburgh, NY 12903

Georgia Advancing Communities Together; Atlanta, GA 30312

Hawai’i Alliance for Community-Based Economic Development; Honolulu, HI 96826

Home Preservation and Prevention; Long Beach, CA 90802

HOPE of Evansville; Evansville, IL 47613

Housing Action Illinois; Chicago, IL 60603

Justice Jobs of Maryland, Inc.; Frederick, MD 21701

Kingsley Housing, Incorporated; New Orleans, LA 70130

Legal Aid Chicago; Chicago, IL 60626

Local Enterprise Assistance Fund; Brighton, MA 02135

Long Island Housing Services; Bohemia, NY 11716

Memphis Interfaith Coalition for Action and Hope; Memphis, TN 38111

Metropolitan St. Louis Equal Housing and Opportunity Council; St. Louis, MO 63110

Mill Cities Community Investments; Lawrence, MA 01840

Montgomery County Office of Human Rights; Montgomery, MD 20850

National Association of Minority Contractors – Oregon; Portland, OR 97212

Neighborhood Housing Services of Queens CDC; Queens, NY 11377

Neighborhood Renaissance; West Palm Beach, FL 33407

New Jersey Citizen Action; Newark, NJ 07102

Old North St. Louis Restoration Group; St. Louis, MO 63107

Parkview Services; Shoreline, WA 98133

Partners for Dignity and Rights; New York, NY 10038

People for Change Coalition; Largo, MD 20774

People’s Self-Help Housing; San Luis Obispo, CA 93401

Proud Ground; Portland, OR 97217

REACH; Pompano Beach, FL 33062

ReBirth Empowerment Education; Dallas, TX 75374

REBOUND, Inc.: Louisville, KY 40203

Reinvestment Partners; Durham, NC 27701

Self-Help Enterprises; Visalia, CA 93290

Services of Hope; Dallas, TX 75026

Southern Mutual Help Association; New Iberia, LA 70563

Southern Mutual Financial Services; New Iberia, LA 70563

St. John’s Housing Partnership; Saint Augustine, FL 32084

Trinity Empower Consortium; Miami, FL 33170

Ubuntu Institute of Learning; Long Beach, CA 90813

Urban Land Conservancy; Denver, CO 80218

Urban League of St. Louis; St. Louis, MO 63108

Urban Neighborhood Initiatives; Detroit, MI 48220

U-Snap-Bac Non-Profit Housing Corporation; Detroit, MI 48224

West Elmwood Housing Development Corporation; East Providence, RI 02916

Woodstock Institute; Chicago, IL 60603



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Redlining and Neighborhood Health

Before the pandemic devastated minority communities, banks and government officials starved them of capital.

Lower-income and minority neighborhoods that were intentionally cut off from lending and investment decades ago today suffer not only from reduced wealth and greater poverty, but from lower life expectancy and higher prevalence of chronic diseases that are risk factors for poor outcomes from COVID-19, a new study shows.

The new study, from the National Community Reinvestment Coalition (NCRC) with researchers from the University of Wisconsin–Milwaukee Joseph J. Zilber School of Public Health and the University of Richmond’s Digital Scholarship Lab, compared 1930’s maps of government-sanctioned lending discrimination zones with current census and public health data.

Table of Content

  • Executive Summary
  • Introduction
  • Redlining, the HOLC Maps and Segregation
  • Segregation, Public Health and COVID-19
  • Methods
  • Results
  • Discussion
  • Conclusion and Policy Recommendations
  • Citations
  • Appendix

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