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1 1 (July 09, 2020)

handle is hein.crs/govdaup0001 and id is 1 raw text is: ~* or 101 ' Researh Set-vic Federal Banking Regulator Finalizes Rule on State Usury Laws July 9, 2020 On May 29, the Office of the Comptroller of the Currency (OCC) finalized a rule concerning federal banking regulation and state usury law that has pitted the financial industry against consumer advocacy groups. The OCC's rule addresses the scope of a federal law empowering national banks to export the maximum interest rates of their home states when lending to borrowers in other states with stricter usury laws. The finalized proposal-which abrogates a 2015 decision from the U.S. Court of Appeals for the Second Circuit-extends this exportation power to non-banks when they purchase loans originated by banks. Industry groups have hailed the measure as providing regulatory certainty to banks, financial technology (FinTecli') firms, and the roughly S563 billion market for securitized consumer debt. In contrast, consumer organizations have criticized the rule for enabling predatory lending and exceeding the scope of the OCC's legal authority. But the agency is unlikely to have the final word: the rule will probably be challenged in court. This Legal Sidebar discusses the dispute's background, the issues that may play a role in any litigation challenging the OCC's rule, and the rule's implications if sustained. Legal Background To protect consumers, many states have adopted usury law s capping the interest rates that lenders can charge borrowers. There is significant variation among state interest-rate limits: some states have adopted strict usury laws, some have enacted more permissive rules, and others have eliminated usury laws altogether. But federal preemption of state law has diminished the relevance of these differences when it comes to bank lending. Section 85 of the National Bank Act (NBA) allows federally chartered banks to export the maximum interest rates of their home states, meaning they can charge those rates when lending to borrowers in other states with stricter usury laws. Accordingly, a national bank headquartered in South Dakota-which has no interest-rate limits-need not abide by New York usury law when it lends to New York borrowers. Predictably, this regime has made more permissive states attractive destinations for banks' credit-card operations.And these shifts have reduced the sway of states that favor stricter limits on high-cost lending. Congressional Research Service https://crsreports.congress.gov LSBI0512 CRS Lega i&sebar Prepa red.r M- :embersand C o m m ; .. e e s o f Cenl o l C o ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------..........

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