Congress Introduces Resolution to Rescind “Fake Lender” Rule that Facilitates Predatory Lenders’ Evasions of State Lending Laws

Texas Appleseed applauds Senators Chris Van Hollen (D-MD), Sherrod Brown (D-OH), and Congressman Chuy García (IL-4) introducing Congressional Review Act resolutions to stop the  “fake lender” rule.  This rushed rule adopted by the US Office of Currency in the waning days of 2020, helps lenders charging 179% APR or more.

The rule attacks state oversight of consumer credit and banking, by smoothing the path for loan operations to skirt state laws through partnerships with out-of-state banks. Often called, “rent-a-bank” schemes, these arrangements are most often used by predatory lenders (who are the true lender) to launder their loans through a few rogue out-of-state banks (the fake lender). 

The rule overrides 200 years’ worth of caselaw that has protected against such schemes by allowing courts to see through usury law evasions to the truth. It replaces tried and true standards with a pro-evasion rule that looks only at the fine print on the loan agreement—fine print that many borrowers never see or understand until they are already trapped in usurious loans.  

Earlier this week, Texas Appleseed joined a broad coalition of 338 organizations representing all 50 states and the District of Columbia calling on Congress to overturn the “fake lender” rule, which threatens to “unleash predatory lending in all fifty states.” The coalition of signatories to the letter consists of civil rights, community, consumer, faith, housing, labor, legal services, senior rights, small business, student lending, and veterans organizations. 

According to national polling, two-thirds of voters (66%) are concerned about the ability of high-cost lenders to arrange loans through banks at rates higher than the state laws allowed. Current research shows that at least eight such arrangements are operating in Texas. If this rule stands, more are sure to come, creating a free-for-all, by enabling predatory lenders to partner with banks across the country or potentially even foreign banks as a way to evade state laws.

This Congress can use the Congressional Review Act (CRA) to rescind recently finalized regulations, including the OCC’s “fake lender” rule, with just a majority vote in both chambers, limited debate, no filibuster, and the president’s signature. The CRA resolution must be voted upon by a certain date, currently estimated between May 10 and May 21.

Please urge your representatives and senators in the Texas congressional delegation to support this CRA effort. We are working hard at the state and local level in Texas to build and enhance fair lending standards that boost financial wellbeing and local economies. If the “fake lender” rule stands, it will have devastating consequences for our state.