State AGs urge OCC to withdraw Madden proposal
On January 21, a bipartisan collation of attorneys general from 21 states and the District of Columbia, along with the Hawaii Office of Consumer Protection, submitted a comment letter in response to the OCC’s proposed rule to clarify that when a national bank or savings association sells, assigns, or otherwise transfers a loan, the interest permissible prior to the transfer continues to be permissible following the transfer. (See Buckley Special Alert on the proposed rule.) The coalition, led by California, Illinois, and New York, urges the OCC to withdraw the proposed rule. Among their concerns, the AGs argue that the OCC’s proposal conflicts with the National Bank Act and Dodd-Frank, exceeds the OCC’s statutory authority, and is in violation of the Administrative Procedure Act. Specifically, the AGs claim that the proposed rule conflicts with National Bank Act (NBA) provisions that grant benefits of federal preemption only to national banks and no one else. Moreover, the AGs assert that Congress explicitly stated in Dodd-Frank that “that the benefits of federal preemption provided by the NBA accrue only to [n]ational [b]anks,” (emphasis in original) and argue that the proposed rule would contravene “this important limitation” and “cloak non-banks in [the NBA’s] preemptive power.” Moreover, the NBA sections say “nothing about interest chargeable by assignees, transferees, or purchasers of bank loans,” the AGs write.
The AGs also argue that the proposed rule would facilitate predatory “rent-a-bank schemes” by allowing non-bank entities to ignore state interest rate caps and usury laws. “The OCC has not addressed, even summarily, how the [p]roposed [r]ule, if adopted, will serve to incentivize and sanction predatory rent-a-bank schemes,” the AGs state. “This failure to consider the substantial negative consequences this rule would have on consumer financial protection across the country renders the OCC’s [p]roposed [r]ule arbitrary and capricious.” Furthermore, the AGs contend that the OCC’s proposed rule contains no factual findings or reasoned analysis to support its proposal to extend NBA preemption to all non-bank entities that purchase loans from national banks. “[T]his is beyond the agency’s power,” the AGs argue, asserting that “[t]he OCC simply ‘may not rewrite clear statutory terms to suit its own sense of how the statute should operate.’”