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January 22, 2020

Miller criticizes plan to exempt payday lenders from state laws

Bipartisan group opposes OCC proposal

DES MOINES -- Iowa Attorney General Tom Miller joined a bipartisan group of attorneys general in opposing a proposal by the Office of the Comptroller of the Currency (OCC) to exempt payday and other high-cost lenders from state usury laws.

Usury laws prevent predatory lenders from taking advantage of consumers by charging high interest rates on loans. If finalized, the OCC’s proposed regulations would enable predatory lenders to circumvent these caps through “rent-a-bank” schemes, in which banks act as lenders in name only, passing along their state law exemptions to non-bank payday lenders. These arrangements would allow lenders to charge consumers rates that far exceed the rates permissible under Iowa law. 

State authority is crucial in protecting residents from high-cost loans. In 2017, Miller's Consumer Protection Division received 127 written complaints related to payday lending. That shrank to nine in 2018, in part because the 2017 Legislature changed the law to crack down on unlicensed lenders, the majority of which are online payday lenders. The division still gets calls related to payday lending but most are resolved without filing a written complaint. 

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. Congress affirmed that role with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, preserving more protective state laws. Yet, the new regulations proposed by OCC would extend the National Bank Act exemption for federally regulated banks to non-bank debt buyers such as payday lenders. The proposed rule is a sharp reversal in policy and a deliberate attempt to evade state laws that target predatory lending, including Iowa. 

The multistate coalition argues in the comment letter that the OCC’s attempt to extend National Bank Act preemption to non-banks conflicts with the National Bank Act and Dodd-Frank Act; exceeds the OCC’s statutory authority; and violates the Administrative Procedure Act. 

In filing the letter, Iowa joins California, Colorado, D.C., Hawaii, Illinois, Maryland, Massachusetts, Michigan, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, South Dakota, Virginia, Washington State, and Wisconsin.

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