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Midlands Voices: Federal proposal would undermine Nebraska's cap on predatory loans
Midlands Voices

Midlands Voices: Federal proposal would undermine Nebraska's cap on predatory loans

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As a former Republican state senator and a veteran who advocates for other veterans’ rights, we know how important it is to stand up when predatory lenders are trying to take advantage of Nebraskans. For this reason, we feel compelled to speak up on the harmful proposed federal rule that would give banks a loophole to begin partnering with non-bank lenders to supersede our state’s interest rate caps on loans.

The proposed rule would welcome banks into the predatory lending business — charging exorbitantly high interest rates in violation of state law, even as banks are getting zero-interest rate loans from the government and paying near-zero rates of interest on their customer’s savings accounts. The federal Office of the Comptroller of the Currency (OCC) claims the bank would become the “true lender,” even if a non-bank lender is marketing and managing the loan. National banks can generally preempt state interest rate caps.

As a result, under these “rent-a-bank” schemes, non-bank lenders essentially pay the out-of-state bank to rent its charter, so they can get around a state’s interest rate cap.

This fraudulent practice can lead to loan laundering, where the bank poses as the original lender, but the non-bank lender could control ongoing interactions with the borrower and receive the vast majority of the profits while ignoring state laws that apply to non-bank lenders.

This would enable banks to charge Nebraskans high interest rates — putting our neighbors who might need a loan to get through hard times at risk of being thrown into a deep cycle of debt.

Because we don’t think Nebraskans should have to pay high interest rates, we were both involved in the successful 2020 ballot initiative to cap rates on payday loans, a form of predatory lending, at 36%. Last November, nearly 83% of Nebraska voters — from all political persuasions — approved Measure 428. But the current rule proposed by the OCC would trample over the will of Nebraskans. In fact, the rule also violates federal law and a warning from Congress in 2010 that interest-rate preemption of state law is limited to banks. It also violates decades of precedent that bank charters should not be rented out.

Other states have seen the importance of preventing this type of rule, too. In North Carolina, for example, “rent-a-bank” schemes allowed payday lenders to charge annual interest rates of more than 443%. North Carolina enforced a new interest rate cap to stop this, which has saved the residents of North Carolina $457 million each year.

But the OCC’s proposed rule would threaten the ability of states, including North Carolina and Nebraska, to enforce their rate caps.

What does this mean to Nebraskans — especially veterans, communities of color, and those who are struggling to make ends meet due to job losses and other impacts of COVID-19? Under this proposed rule, predatory lenders are handed a roadmap to skirt around state consumer protections, and consumers get weak, vague standards from an agency that has too frequently failed to enforce these protections. The OCC should be lowering burdens for borrowers in this crisis, not piling on unaffordable, predatory debt.

Sadly, rent-a-bank schemes already exist in Nebraska, threatening our state usury protections. On a $2,000, two-year loan, for which Nebraska caps rates at 24%, lenders like EasyPay, Elevate and others are charging up to 189% interest.

There is still time to prevent the OCC’s rule from going into effect. Nebraska’s senators must support a Congressional Review Act (CRA) resolution of disapproval to invalidate the OCC’s true lender rule. On March 26, 2021, Sen. Chris Van Hollen, D-Maryland, introduced a CRA resolution, co-sponsored by Senate Banking Committee Chair Sherrod Brown, D-Ohio, and six Democratic senators. As a Republican state, Nebraska’s involvement could be instrumental in turning this into a bipartisan effort. Nebraskans should ask Sens. Ben Sasse and Deb Fischer to support this resolution to protect the best interests of their hard-working constituents. Quick action is important, because the CRA must be passed by April 28, 2021.

We must also urge our representatives in Congress to support House Resolution 5050, the Veterans and Consumer Fair Credit Act. H.R. 5050 would cap annual interest rates on consumer loans, whether made by banks or non-banks, at 36% nationwide for states that have higher rates. States like Nebraska with lower interest rate caps would not be preempted by this rule.

Many polls show strong bipartisan support for affordable interest rate limits, and almost all states have far lower limits than the true lender rule would encourage. Nebraskans must act — and we must do so quickly, to protect our communities from these harmful, often debilitating, high-interest loan schemes. We strongly urge our state’s U.S. senators and congressional representatives to support both of these measures, which would ensure that Nebraskans can borrow money at reasonable rates, especially during these challenging times when so many people need a little extra help to get by.

It’s the right thing to do, and we have to act fast.

Al Davis is a former Republican state senator. Mick Wagoner is a veteran, attorney, and founder and executive director of Veterans Legal Support Network.

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