In The News

House follows Senate in throwing out OCC's 'true lender' rule

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Washington, June 24, 2021 | comments
From the American Banker: 

The House voted on Thursday to dismantle a Trump-era rule that sought to make it easier for national banks to make and sell loans through fintech partnerships.

Following the Senate’s lead from early May, the House voted 218-208 to rescind an Office of the Comptroller of the Currency regulation known as the “true lender” rule using the Congressional Review Act. The measure now goes to President Joseph Biden’s desk, where he is expected to sign it into law.

As in the Senate, the CRA vote to overturn the OCC’s rule was bipartisan, albeit barely: one Republican House member voted with Democrats to undo the regulation.

The rule, finalized in October by former acting Comptroller Brian Brooks and in effect since December, introduced a simple test to determine who the “true lender” is in bank-nonbank partnerships; if a bank funds the loan or is named as the lender in an agreement, under the rule, the bank would be considered the true lender.

When a national bank is considered the true lender, the loan qualifies for federal protections such as preemption from state interest rate caps. While many in the banking industry supported the rule and praised its simplicity, consumer protection advocates have argued the test would make it too easy for predatory lenders to export expensive loans into states with strict usury laws using national bank powers.

“This ‘fake lender’ rule greenlights rent-a-bank schemes in which predatory lenders evade bank interest rate limits to swindle vulnerable consumers,” said House Speaker Nancy Pelosi, D-Calif., during a floor debate prior to the vote. “This is done by putting a bank name on loan paperwork and claiming that the bank, not the predatory lender, issued the loan.”

In a statement issued in response to the vote, acting Comptroller of the Currency Michael Hsu said in the OCC “will consider policy options, consistent with the Congressional Review Act, that protect consumers while expanding financial inclusion.”

“Both of these priorities are part of the agency’s mission of ensuring that national banks and federal savings associations provide fair access to financial services for all Americans and that customers are treated fairly,” Hsu said.

Republicans, led by Rep. Patrick McHenry, R-N.C., the ranking member of the House Financial Services Committee, argued ahead of the vote that throwing out the OCC’s rule would sow confusion and limit consumer access to credit.

“Let's call this what it is: it's blue states, and their left wing, so-called consumer protection advocates, who want to again limit the reach of national banks and partnerships under the guise of quote-unquote ‘consumer protection,’” McHenry said during the floor debate.

Republican representatives arguing against the CRA challenge frequently invoked the need to maintain access to credit among communities of color, saying that fintech firms were more likely to serve such populations.

“Fintech has been instrumental in expanding access to credit for consumers who have little or no credit history,” said Rep. Barry Loudermilk, R-Ga. “This resolution is devastating to minority consumers and businesses, and those with subprime credit, and the unbanked. Instead of giving those people options, this resolution would direct them to payday lenders or, in states like Georgia where payday lending is illegal, they will have no access to credit.”

Some Democrats greeted such concerns with skepticism.

“I am absolutely overcome by the great interest that my Republican colleagues have in helping minorities,” House Financial Services Committee Chair Maxine Waters, D-Calif., said during the floor debate. “But I hardly think that this is all about taking care of minorities and these small businesses. This is about protecting the big banks. This is about protecting the national banks.”
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