The Office of the Comptroller of the Currency (OCC) proposed a rule that would allow predatory lenders to partner with out-of-state banks for the purpose of evading North Carolina’s interest rate cap.
The “true lender” rule would enable the same situation that the North Carolina Banking Commissioner put a stop to in 2006. Payday lenders like Advance America were operating all over the state, charging annual interest rates up to 400%, which violated North Carolina law and trapped people in high-cost debt cycles. North Carolina currently saves $457 million per year in payday and car title fees by enforcing our consumer protections.
Payday and car title loans are marketed as quick relief for cash-strapped borrowers, but overwhelming evidence shows that the business model of these lenders is based on engaging customers in a long-term repeat cycle. Payday lenders obtain 75% of their revenue from borrowers with more than 10 loans per year.
At triple-digit interest rates, the cycle causes extreme financial distress for borrowers, who have trouble paying bills, experience bank fees that trigger bank account closures, and are more likely to file bankruptcy than similarly-situated people without payday loans.
Center for Responsible Lending (CRL) Director of North Carolina Policy Rochelle Sparko issued the following statement:
“The proposal by the OCC shows great insensitivity to the plight of essential workers and other North Carolinians, for whom predatory lending is both more dangerous and potentially more harmful than ever. Our state saw the destruction predatory lenders caused and chased them out of our borders in 2006. It would be a great shame to see them come back, set up shop in our strip malls, and put their wealth-stripping machines back into service, especially in the communities of color where they locate most frequently and where families are devastated by the COVID-19 pandemic and its economic consequences.”
The deadline for comments to the OCC on this proposed rule is Sept. 3, 2020. The FDIC has previously signaled interest in issuing its own proposed “true lender” rule.