Michigan Attorney General Dana Nessel on Wednesday joined 23 other attorneys general in submitting a comment letter opposing a proposal by the Federal Deposit Insurance Commission (FDIC) to preempt state usury laws that regulate payday and other high-cost lending.
Usury laws prevent predatory lenders from taking advantage of consumers by charging high interest rates on loans. The FDIC’s proposed regulations would enable predatory lenders to bypass state usury laws through “rent-a-bank” schemes, in which banks act as lenders in name only, passing their state law exemptions to non-bank payday lenders.
“My office has a responsibility to act when Michiganders are at risk of deceitful and abusive loan practices,” Nessel said. “If the Federal Deposit Insurance Commission enacts this proposal, consumers will face predatory and misleading tactics from payday lenders driven by profit, and that’s more than enough reason for my colleagues and me to oppose this proposal.”
States have historically played a critical role in protecting consumers from predatory lending by using rate caps to prevent unaffordable, high-cost loans from being issued. While federal law provides a deviation 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.
The new regulations proposed by the FDIC would extend the Federal Deposit Insurance Act exemption for federally regulated banks to these non-bank debt buyers, a sharp reversal in policy that purposely dodges state laws targeting predatory lending. In the comment letter, the coalition argues that the FDIC’s attempt to extend preemption to non-banks conflicts with the Federal Deposit Insurance Act, exceeds the FDIC’s legal authority, and violates the Administrative Procedure Act.
Nessel joins the attorneys general of California, Colorado, Connecticut, the District of Columbia, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Tennessee, Vermont, Virginia, Washington and Wisconsin in signing this letter.
The FDIC’s newest proposal is similar to a recent proposal from the Office of the Comptroller of Currency (OCC) that would exempt entities that are not national banks (including payday and other high-cost lenders) from state usury laws. Nessel signed onto an additional letter opposing the implementation of this proposal late last month.
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