Attorneys General Seek to Stop Debt Trap Lending

Andy Spears
3 min readApr 21, 2021

In a rare form of bipartisan agreement, a group of 25 Attorneys General (AGs) sent a letter today to Congressional leadership urging it to “use the Congressional Review Act (CRA) to rescind the Office of the Comptroller of the Currency’s (OCC’s) “True Lender” rule in order to “safeguard states’ fundamental sovereign rights to protect their citizens from financial abuse.”

The bipartisan letter included the AG in Arkansas, where voters approved a 17% interest rate cap on payday and installment loans in 2010, as well as AGs from Nebraska, South Dakota and Colorado, where voters overwhelmingly supported a 36% interest rate cap. The Nebraska vote last November was the most recent, with 83% of the voters approving the rate limit. Yet in all of these states, voter-approved rate caps are being evaded by high-cost lenders laundering their loans through a few rogue banks, which are not subject to state rate caps. The true lender rule (more accurately, “fake lender” rule) protects those evasions.

The letter states:

“A growing number of states continue to pass state usury interest-rate caps on high-cost small-dollar loans in an effort to protect their consumers from predatory financial products. The OCC’s Rule would be exploited by lenders seeking to circumvent these state interest-rate caps and invite, indeed welcome, predatory consumer-lending partnerships between banks and lightly regulated non-depository lenders. We urge you to use the Congressional Review Act, 5 U.S.C. §§ 801–808 (“CRA”), to rescind the OCC’s True Lender Rule and safeguard states’ fundamental sovereign rights to protect their citizens from financial abuse.

“Numerous courts across the United States have held that non-banks cannot escape state usury prohibitions under the guise of rent-a-bank schemes. Courts have not hesitated to apply the “true lender doctrine” when a bank is named as the nominal principal party to a loan transaction but the transaction involves a non-bank participant attempting to skirt state usury limits. …In direct contradiction to reasoned judicial analysis, the OCC has issued a harmful Rule that establishes a simplistic standard to redefine the meaning of “true lender”.

The letter concludes:

“Americans spanning all political alignments are demanding that lenders who impose unconscionably exorbitant interest rates be subject to more, not less, regulation. Currently, 45 states and the District of…



Andy Spears

Writer and policy advocate living in Nashville, TN —Public Policy Ph.D. — writes on education policy, consumer affairs, and more . . .