New York Attorney General Letitia James today filed a lawsuit to stop the Trump Administration from giving predatory lenders the ability to take advantage of consumers by charging high interest rates on loans and bypassing state interest caps — or usury laws — already in place, even as the coronavirus disease 2019 (COVID-19) public health crisis continues to wreak havoc on state and national economies. Attorney General James, along with the attorneys general of California and Illinois, filed the suit to stop a new Trump Administration rule that would allow the federal government to preempt state usury laws and allow third-party entities to prey on vulnerable New Yorkers.
“As our state and nation continue to suffer the devastating effects of COVID-19, with millions of Americans still unemployed and struggling to make ends meet, it is reprehensible that the Trump Administration has chosen to protect big banks’ profits rather than vulnerable consumers’ wallets,” said Attorney General James. “All this rule does is make it easier for bad actors to charge New Yorkers triple-digit interest rates on loans and chart a path to more easily take advantage of consumers, which is why we are taking action.”
Under the federal National Bank Act, national banks that are licensed and regulated by the Office of the Comptroller of the Currency (OCC) are permitted to charge interest on loans at the maximum rate permitted by their home state, even in states where that interest rate would violate state usury laws. The ability to preempt state usury laws in this way is a privilege granted to national banks — and only national banks — because they are subject to extensive federal oversight and supervision.
This privilege is extremely valuable to national banks because it permits them to lend money at rates that far exceed the rates they already pay to borrow money. While federal law provides a carve out from state usury laws for federally-regulated banks, state law continues to protect residents from predatory lending by non-banks, such as payday, auto title, and installment lenders. Congress affirmed that role with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, preserving more protective state laws and rejecting attempts by the OCC to limit the authority of states over the financial services industry.
Despite the protections that have been in place for the past decade, the OCC rule that is the subject of today’s lawsuit would extend the National Bank Act exemption for federally-regulated banks to non-bank debt buyers, such as payday lenders or any other entity that purchases debt from a national bank. The rule seeks to achieve this result by recasting the National Bank Act preemption as an ordinary property interest that can be assigned, and codifying an obscure doctrine that purportedly concerns the assignability of contractual rights — a sharp reversal in law and policy.
In the lawsuit filed today, Attorney General James and the coalition of attorneys general ask the court to declare the rule unlawful and to set it aside — arguing that the OCC has exceeded its authority under the National Bank Act and the Dodd-Frank Act, in violation of the Administrative Procedure Act. Further, Congress has clearly rejected legislation to expand the National Bank Act preemption to non-banks, further undermining the OCC’s attempt to rewrite federal law to suit its extreme policy preferences.
In addition to the rule that is the subject of today’s lawsuit, last week, the OCC issued a proposal that would fundamentally redefine what is known as the ‘true lender’ doctrine, and provided the financial services industry with a legal roadmap for creating “rent-a-bank schemes” — when heavily regulated national banks enter into sham partnerships with unregulated entities so that these unregulated entitites can bypass state laws and charge interest rates far above what state law allows.
Earlier this year, in January, Attorney General James co-led a bipartisan coalition of 22 attorneys general in submitting a comment letter to the OCC opposing the rule that is the subject of today’s lawsuit.
Separately, in February, Attorney General James co-led a bipartisan coalition of 24 attorneys general in sending a comment letter to the Federal Deposit Insurance Corporation, opposing a rule that would similarly weaken regulations on payday lenders and other high-cost lending, and would enable predatory lenders to circumvent state caps through rent-a-bank schemes.
This matter was handled by Assistant Attorney General Christopher L. McCall, Deputy Bureau Chief Laura J. Levine, Bureau Chief Jane M. Azia, and summer law intern Daniel Ocampo — all of the Consumer Frauds and Protection Bureau. The Consumer Frauds and Protection Bureau is a part of the Divison for Economic Justice, which is overseen by Chief Deputy Attorney General Chris D’Angelo and First Deputy Attorney General Jennifer Levy.