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In the Mountain State, there is a strong bipartisan tradition of ensuring that lenders cannot take advantage of borrowers by charging usurious rates of interest. Just one example is the case, CashCall v. Morrisey, initially prosecuted by Attorney General Darrell McGraw and defended in the U.S. Supreme Court by Attorney General Patrick Morrisey against the out-of-state lender CashCall.

CashCall had charged hundreds of West Virginians interest at rates of 89% to 96% on loans of $1,075 to $5,000, in violation of West Virginia’s usury laws. In these loans, CashCall had required the borrowers to pay more than three times what they had initially received. (For example, a loan of $2,600 for 42 months required the borrower to repay $9,095.)

CashCall made these loans ostensibly through a small bank in South Dakota that “rented” its name to enable these loans to avoid West Virginia’s state laws prohibiting usury. (South Dakota does not limit interest rates, and federal law allows banks to charge any rate permitted in their home state.) The West Virginia Supreme Court agreed with the trial court’s finding that the bank was not the true lender and that the loan was structured to allow CashCall to hide behind the bank.

The court refused to look only at the name on the loan agreement or the “superficial appearance of CashCall’s business model.” Instead, the court found that these loans were actually made by CashCall in an illegal attempt to avoid state law. CashCall was ordered to refund the illegal interest it had charged to West Virginia borrowers.

But a rule adopted in late 2020 by the regulator of the nation’s largest banks (the Office of the Comptroller of the Currency, or OCC) would actually stop the courts from determining that the banks in these cases are only “fake lenders.” The rule allows predatory lenders to ignore state laws, as long as a bank is “named as the lender in the loan agreement.” Nothing more is required.

The OCC rule overturns centuries of case law allowing courts to look beyond ruses to the truth, and actually shields these predatory lenders from states’ efforts to protect consumers. If the OCC’s rule is allowed to stand, West Virginia will not be able to safeguard its citizens from predatory high interest rate lenders like CashCall.

Interest rate caps are the simplest, most effective protection against predatory lending. People who tend to be caught up in these high-rate loans are often desperate for assistance, including many of the state’s working poor, elderly, veterans and small businesses. Yet, in most situations, more affordable and fairer credit is available from state-regulated lenders.

Like West Virginia, 44 other states and Washington, D.C., limit rates on installment loans. The “fake lender” rule threatens state laws that are supported overwhelmingly by voters on a bipartisan basis. In November 2020, 83% of Nebraska voters supported a 36% rate cap for loans.

Large majorities in red and blue states have voted for rate caps (i.e., Arizona, Colorado, Montana, Ohio, South Dakota). Indeed, the West Virginia Legislature, under the leadership of both parties, has maintained the strong protections against predatory lending in our state law. But all efforts by states to shield borrowers from usurious loans like CashCall’s interest rates are wiped out by the OCC’s rule.

Congress is considering overturning the OCC’s “fake lender” rule, to preserve the ability of states’ to apply rate caps. Hopefully, West Virginia’s senators and representatives in Congress will side with the people of our state.

Margot Saunders, of Hurricane, is senior counsel for the National Consumer Law Center. She served as the expert witness for the West Virginia Attorney General’s Office in its prosecution of the case against CashCall for usurious interest rates, as well as in 50 other cases around the nation on consumer protection issues.

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