The OCC's 'Fake Lender' Rule Threatens to Harm Veterans


Retired Army Col. Paul Kantwill serves as Founding Executive Director of the Rule of Law Institute at Loyola University Chicago School of Law. He previously led the Office of Servicemember Affairs at the Consumer Financial Protection Bureau. He had a 25-year career as an active-duty officer in the U.S. Army and served in Afghanistan and the Persian Gulf.

This September will mark the 20th year that our country has been at war. Unfortunately, as the war in Afghanistan winds down, the campaign against America's veterans by predatory lenders continues.

Service members have long been targeted by unscrupulous lenders. Congress passed the Military Lending Act in 2006, and its 36% rate cap has been incredibly successful. Once service members leave active duty, however, they lose the act's protections and must rely on state interest rate caps to protect them from predatory lenders.

But the 45 states that have rate caps are under threat from a rule enacted last year by the Office of the Comptroller of the Currency, or OCC. That rule, shockingly, protects predatory lenders that use evasive schemes to get around state laws.

Congress has a short window of time to use a Congressional Review Act resolution to overturn this ill-considered rule, and lawmakers should listen to the 375 nonprofit organizations (including Blue Star Families and Minority Veterans of America), 138 scholars, and a bipartisan group of 25 state attorneys general (including Arkansas, Nebraska and South Dakota) urging repeal of the rule.

Efforts to stop usurious lending go back to the Bible and the Code of Hammurabi, and are strongly supported by the American public. Just last month, my home state of Illinois passed a 36% rate cap with strong bipartisan support. Every time this issue comes up on the ballot, it has passed with large bipartisan majorities, even in red states. In November 2020, 83% of Nebraska voters supported a 36% rate cap. Similar recent votes in Arizona, Colorado, Montana and South Dakota brought those states into a group including Arkansas, Georgia, New York, North Carolina and West Virginia that protect their people from the worst effects of predatory lending.

Evasions are as old as usury laws. But under two centuries of case law and U.S. Supreme Court precedent, courts can look beyond the fine print to the truth and substance of a disguised usurious transaction. One such method of detection, called "the true lender doctrine," has been used for about two decades to stop payday lenders from simply putting a bank's name on the contract (banks are exempt from state rate caps), and thereby evade state protections that prohibit 400% annual percentage rate loans.

But the OCC rule overturns the true lender doctrine and allows predatory lenders to hide behind a fake lender -- an obscure, rogue bank that has little to do with the loan program. The rule declares that the only thing that matters is affixing a bank's name to the loan agreement, even if the predatory lender is the true lender.

Thus, the OCC rule protects "rent-a-bank" schemes that threaten veterans. A disabled U.S. Army retiree living on a fixed income was ensnared recently in a $1,500 loan at 160% interest, even though a new California law caps interest rates at 36% plus the federal funds rate. A large percentage of his monthly benefits went to pay the loan and, like most vulnerable consumers resorting to high-cost loans, he fell into a cycle of debt. The lender, operating under a California license prior to passage of the rate cap, argued exactly what the OCC rule would allow: Because an obscure Utah bank's name was on the loan paperwork, the unconscionable transaction was a bank loan exempt from California law.

As the pandemic continues, usurious rent-a-bank loans are deepening veterans' financial distress, not relieving it. Another disabled veteran on a fixed income, a Hope Credit Union member with no previous history of using high-cost loans, took one of these "rent-a-bank" loans. Less than a year later, he had six payday loans on top of the rent-a-bank loan. Two days after he received his $1,200 stimulus check, five lenders extracted $1,004, with the original rent-a-bank lender extracting the largest payment. This is not where Congress intended COVID-19 stimulus money to go.

These two disturbing examples are but a small sampling of the harm caused by these products. Other veterans and military family members continue to complain to the Consumer Financial Protection Bureau about high-cost loans from the same lenders that are engaging in "rent-a-bank" schemes to evade state laws.

Veterans who have fought for their country deserve better. Congress should support the resolution overturning the "fake lender" rule in order to protect all consumers and to uphold the rights of voters and states to stop predatory lending.

-- The opinions expressed in this op-ed are those of the author and do not necessarily reflect the views of If you would like to submit your own commentary, please send your article to for consideration.

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