Attorney General Phil Weiser joins lawsuit to stop predatory lenders from taking advantage of Colorado’s most vulnerable communities
Jan. 5, 2021 (DENVER, Colo.)–Attorney General Phil Weiser today joined a coalition of eight attorneys general in filing a lawsuit to overturn a new federal rule that would take advantage of Colorado’s most vulnerable consumers. This lawsuit is his latest effort to protect Colorado consumers from predatory lending.
The coalition filed the lawsuit against the Office of the Comptroller of the Currency (OCC) over a rule that would undermine Colorado’s efforts to prevent predatory lenders from charging high interest rates on loans and bypassing state interest rate caps—or usury laws—already in place. The new rule would enable predatory lenders to circumvent these caps through “rent-a-bank” schemes with national banks—arrangements in which the heavily regulated bank acts as the lender in name only for the express purpose of enabling payday lenders and other non-bank lenders to evade state consumer protection laws.
“Colorado’s consumer protection laws are in place for a reason,” said Weiser. “This new rule would undermine those vital laws and enable lenders to take advantage of our residents. We are challenging this rule to restore long-held protections for Coloradans against predatory lending by non-banks.”
For years, non-bank entities have attempted to partner with banks to take advantage of these special bank privileges and to offer ultra-high-rate loans in states where such loans are forbidden. In 2020, the Attorney General’s Office reached a settlement in two precedent-setting lawsuits involving Colorado’s right to enforce its interest rate limits on consumer loans to protect residents from predatory lending practices.
In their lawsuit, the coalition argues that the rule stands in direct conflict with the National Bank Act and the Dodd-Frank Act, exceeds the OCC’s statutory authority, and violates the Administrative Procedure Act.
Under the National Bank Act, national banks that are licensed and regulated by the 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 banks—and only to banks—because they are subject to extensive federal oversight and supervision. This privilege is also extremely valuable to banks because it permits them to lend money at rates greatly exceeding those ordinarily permissible under state law.
Under the new OCC rule, courts would be prevented from engaging in any such inquiry so long as the national bank is either named as the lender on the loan documents or the bank initially “funds” the loan. Further, the new rule would allow the national bank to instantly sell the loan and without ever assuming any meaningful economic risk on the loan. This approach will provide an advantage to only national banks and the predatory lenders that partner with them and will do so at the expense of hardworking consumers. Moreover, this radical proposal represents a stark departure from decades of OCC policy that has rebuked national banks for entering into “rent-a-bank” schemes.