U.S. Treasury defeats states’ suit challenging a rule on sold loans

The U.S. Treasury Department defeated a blue-state challenge to a rule that exempts buyers of high-interest loans from state interest rate caps.

U.S. District Judge Jeffrey White in Oakland, California, agreed with the Office of the Comptroller of the Currency and threw out the suit brought by New York, California and Illinois. The states argued the rule by the OCC, an independent bureau of Treasury, will encourage predatory lending.

Stefani Reynolds/Bloomberg

The three Democrat-controlled states sued the Trump administration in July 2020 over the rule, claiming it encourages predatory lending through sham “rent-a-bank” partnerships designed to evade state laws intended to protect consumers. The OCC under President Biden has continued to defend the rule.

The office of California Attorney General Rob Bonta didn’t immediately respond to an email seeking comment.

U.S. law has permitted federally chartered banks to charge interest rates that exceed state limits, but non-banks can’t. Widespread complaints from the lending industry prompted the OCC’s rule finalized in May 2020.

The states argued the rule violates the federal Administrative Procedure Act, and that they exercise the power to determine what interest rate creditors can charge borrower. The OCC disagreed, contending in a court filing that its rule doesn’t preempt state law but rather “merely interprets” banks’ authority to charge interest.

Both sides filed requests with the judge seeking final resolution of the dispute without a trial. White sided with the OCC on Tuesday and entered an order allowing the rule to stay in effect.

The case is California v. Office of the Comptroller of the Currency, 20-cv-5200, U.S. District Court, Northern District of California (Oakland).