In November 2019 — before quarantine, social distancing, and a year straight of unemployment insurance claims higher than the worst week of the Great Recession, back when the idea of paying millions of dollars for GIFs seemed unimaginable — the Trump administration’s Office of the Comptroller of the Currency (OCC) quietly introduced a new banking rule to circumvent dozens of state laws designed to protect low-income people from exploitation. The “rent-a-bank” or “fake lender” rule, as it’s being called, allows non-bank lenders (such as payday loan lenders) to launder their loans through nationally chartered banks in order to get around state interest rate limits. This rule, which went into effect in December 2020, upends almost two centuries of U.S. banking law and could trap millions in debt, unless Congress acts soon to overturn it.
Usually, people associate predatory lending with payday loans. And it’s common knowledge exactly how awful payday loans are: 12 million people — 84 percent of whom have family income under $40,000 — are subject to annual percentage rates (APRs) around 400 percent to borrow just a few hundred dollars. These rates trap borrowers in long debt cycles of constant loan renewals. The typical payday loan consumer will spend almost 200 days — more than half the year — in debt, and two-thirds will renew at least seven times, meaning they ultimately pay more in interest and fees than the original amount they borrowed.
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