Alaska senators must close ‘bogus lender’ loophole
For nearly 40 years, Alaskans have capped the interest rate on ‘little dollar’ loans, a type of loan that is larger than a payday loan – maximum $ 500 – but less than 2,000. $. This interest rate cap is 31% annual interest, or APR.
Now that state-level cap is threatened by an executive branch rule of the Office of the Comptroller of the Currency, aka OCC. Under the new rule, “rent-a-bank” lenders plan to spread debt traps across the country, even in states with strong consumer protections. Our US senators can join us in closing this regulatory loophole.
The scheme is quite simple. In order to circumvent widely supported interest rate caps in states, payday lenders launder their loans through partnerships with dishonest banks – a good illustration of the problem is here – and claim that they are only providing the technology. In reality, payday lenders design the products – for example, interest rates, loan qualifications, etc. – and take most of the profits. These rogue banks are often referred to as “banks for rent” because their bankers offer the loan, which the predatory lenders immediately redeem on the bank’s books.
Now, the OCC says it doesn’t count as a payday loan or a small dollar loan because it is technically sourced at the bank level – which is important because not all loan types have a cap. interest rate in Alaska. Here, for a 14 day payday loan of $ 100, the APR is 521%.
If this “bogus lender” loophole is put into law, we can expect to see the same kinds of high interest rates on larger loans – and our state’s rate cap would lose its meaning. meaning.
From what we know of the lenders, our veterans and rural communities will be particularly affected by these loans. Active duty military personnel and their families are protected nationwide against predatory lending under an interest rate cap set by the Military Loans Act, but lose that protection as soon as that person leaves service. Lenders then targets veterans across the country to trap them in endless debt once they are released from national protection. The marketing and promotion of these little dollar loans will be relentless here in our state as Alaska leads the country in veteran residents per capita.
Since these lenders are mostly online, rural communities will also be key targets for bank rental programs. There are only 121 branches in 33 Alaskan communities, in addition to 23 payday loan storefronts. Since 54% of Alaskan payday loans are sold online, it can be expected that a large number of rural Alaskans will turn to the internet to research loan products. Rural Alaskan borrowers are prime targets for bank lease lenders if the “bogus lender” rule is allowed to be enacted.
It’s not bad at all! What started at the federal level may end there. Under the Congressional Review Act, Congress can overrule an agency decision with just 50 votes, but they are running out of time to use that power. Last month, the Chairman of the Senate Banking Committee, Senator Sherrod Brown, along with Senator Chris Van Hollen and Representative “Chuy” Garcia, presented Joint Resolution 15, which would erase the OCC’s “bogus lender” rule from the books. Our Senators, Lisa Murkowski and Dan Sullivan, should support this resolution to protect the people of Alaska and prevent predatory lenders from spreading.
Veri di Suvero is the executive director of the Alaska Public Interest Research Group, or AKPIRG. Founded in 1974, AKPIRG is Alaska’s only non-partisan, nonprofit organization that advocates on behalf of consumers and the public.