House and Senate vote to repeal OCC’s true lender rule


UPDATE: June 25, 2021: The House on Thursday voted to repeal the Office of the Comptroller of the Currency’s “true lender” rule, a Trump-era policy that has drawn criticism from Democrats for the leniency it grants to non-banks and payday lenders to avoid state caps on interest rates charged to consumers by partnering with national banks headquartered in less restrictive states.

House lawmakers voted 218-210 to pass a Congressional Review Act (CRA) resolution to strike down the rule, which was finalized in October. A Republican sided with 217 Democrats in voting to revoke the rule.

The Senate passed the resolution last month and is now heading to President Joe Biden’s office, where he is expected to sign it.

Proponents of the true lender rule argue that it provides greater regulatory certainty for banks to expand their offerings and that it gives consumers more financial options.

Acting Comptroller Michael Hsu, in a report Thursday said the OCC respects the role of Congress in reviewing regulations under the CRA.

“As we anticipate President Biden signing the resolution, I want to reaffirm the agency’s longstanding position that predatory lending has no place in the federal banking system,” he said. . “Going forward, the OCC will consider policy options, consistent with the decision of Congress Review Act, which protects consumers while expanding financial inclusion. Both of these priorities are part of the agency’s mission to ensure that national banks and federal savings associations provide fair access to financial services to all Americans and that customers are treated fairly.”

Diving brief:

  • The Senate on Tuesday passed, by a vote of 52 to 47, a Congressional Review Act (CRA) resolution to strike down the Office of the Comptroller of the Currency’s (OCC) “true lender” rule.
  • Three Republicans – the senses. Cynthia Lummis of Wyoming, Marco Rubio of Florida and Susan Collins of Maine — joined Democrats in supporting the resolution. Lummis, for her part, said she plans to introduce a bill aimed at clarifying the regulations surrounding bank-fintech partnerships.
  • The CRA allows Congress to repeal a regulation with simple majority votes in both houses and the signature of the president. The Biden administration, in a statement ahead of Tuesday’s vote, said the OCC’s true lender rule “undermines state consumer protection laws and would allow the proliferation of predatory lending by payday lenders.” unregulated”. Rep. Jesús G. “Chuy” García, D-IL, introduced a measure in the Democratic-majority House to reverse true lender rule. This chamber has until the end of the mandate of this Congress to adopt it.

Overview of the dive:

The OCC’s True Lender Rule has drawn attention to the leeway it gives non-banks, including payday lenders, to avoid state caps on interest rates charged to consumers by partnering with national banks headquartered in less restrictive states.

Rule, completed in October, clarified that a bank would be the true lender of loans granted in partnership with third parties if, on the date of granting, it finances the loan or is designated as the lender in the loan agreement. If a bank is named as the lender in the loan agreement and another bank finances the loan, the former is the true lender, according to the rule.

But it is exactly this clarity that has prompted banking trade groups such as the American Bankers Association (ABA) to oppose the use of the CRA to repeal the rule. The CRA prohibits regulators from enacting a replacement rule that is “substantially similar” to the one repealed by Congress.

The “legal certainty” of a binding agency rule “has tangible benefits for borrowers seeking affordable credit and for market participants”, trade groups wrote in a joint letter last week. Without rules, the courts could apply varying standards for determining which entity is the true lender, which in turn could discourage lending, the groups wrote. In a follow-up letter Tuesday, the ABA said the rule needs to be strengthenedbut invalidating it through the ARC may prevent the next head of the OCC from changing it.

Acting Comptroller Michael Hsu, on his first day as head of the regulator on Monday, said he would announce a notice key regulatory standards and various outstanding issues, but did not mention any by name.

Lummis, meanwhile, said the OCC rule would make it easier for national banks to make and allocate loans than state-chartered ones.

“[The true lender rule] has the potential to upset parity between state and national banks,” she told the Senate ahead of Tuesday’s vote, according to American banker. “For innovation to be truly sustainable, it must be built on solid foundations and not pick winners and losers between national banks and state banks.”

Senate Democrats such as Majority Leader Chuck Schumer, D-NY, cited that more than 40 states have passed laws to cap the interest rates nonbank lenders can charge and criticized the Trump administration. and its appointees for enabling the “loophole” created by the True Lender’s Rule.

Senator Chris Van Hollen, D-MD, introduced the anti-“true lender” resolution in March. Senate Banking Committee Chairman Sherrod Brown, D-OH, called on the OCC to revoke the rule, saying it was “rushed.”

“We know why these common sense laws that our states have passed are popular and have bipartisan support in states across the country,” Brown said. said tuesday before the vote. “People don’t want predatory lenders going after them, their relatives or their neighbours.”

The ranking member of the banking panel, however, said rolling back the rule would hamper low-income Americans’ access to credit and stifle innovation.

“Community and mid-size banks – which lack the resources to develop banking technology in-house – are partnering with fintechs to be more competitive,” said Senator Pat Toomey, R-PA. “These partnerships benefit consumers. By increasing competition in loan markets, they lower the price of financial products, improve credit options and expand consumer choice.”

Lawmakers have used the ARC another time this mandate to roll back a Trump-era policy. The Senate voted last month to repeal relaxed methane emissions standards for oil and gas wells, Bloomberg Law reported. The Chamber did not follow.


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