House votes to repeal Trump-era ‘real lender’ rule (correct)

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The House voted to repeal a Trump administration rule that would make it easier for banks and fintech lenders to partner together without breaking state law.

House lawmakers on Thursday voted 218 to 208 to repeal the Office of the Comptroller of the Currency’s “real lender” rule, released last October to protect any fintech loan issued in partnership with a national bank from being subject to the laws state, including interest rate caps.

Democrats voted unanimously to repeal the regulation, with a Republican — Rep. Glenn Grothman from Wisconsin — join them. Grothman is a co-sponsor of legislation that would cap interest rates at 36% nationwide.

The Senate on May 11 voted to overthrow the rule, by passing a resolution (SJRes. 15) under the Congressional Review Act. The CRA allows Congress to repeal bylaws with simple majority votes and the president’s signature.

The measure now goes to the White House, where President Joe Biden is expected to sign it.

In a statement released after the vote on Thursday, Acting Currency Comptroller Michael Hsu said he respects the action of Congress and that the OCC will continue its efforts to expand access to the financial system while combating the predatory loans.

“These two priorities are part of the agency’s mission to ensure that national banks and federal savings associations provide equitable access to financial services for all Americans and that customers are treated fairly,” he said. -he declares.

Interest rate caps

The OCC adopted the True Lender Rule under the leadership of former Interim Monitor Brian Brooks.

Repealing the rule will have a negative effect on fintechs and their customers, said Scott Talbot, vice president of government relations at the Electronic Transactions Association, a trade association in the payments industry.

“The invalidation of the regulation will inject uncertainty into the modern financial system, where banks and fintechs have converged to make credit available to small businesses,” he said.

But consumer advocates have said the rule provides ways for fintechs to escape state interest rate caps by issuing their loans through domestic banks, which are not subject to the restrictions.

Illinois in March became the most recent the state to adopt an interest rate cap of 36%. South Dakota and Nebraska both adopted 36% interest rate caps in popular referendums in 2016 and 2020, respectively, even as state voters in those years overwhelmingly supported the former president. Donald Trump.

The rule brings back the “rent-a-bank” programs that existed in the past, say critics, noting that banks must simply provide documents on a loan – rather than take an economic stake – to be considered genuine lenders.

“It’s nothing but harmful. This is an existential threat to the state’s interest rate limits that protect consumers from predatory loans, which have been in place since the country’s founding in many states, ”said Lisa Stifler, Director from state policy to the Center for Responsible Lending.

Imprecise impact

Democratic state attorneys general filed a lawsuit to block the settlement shortly after it was finalized, so it never came into full effect. And banks had partnered with fintechs and other non-bank lenders before the OCC issued the final rule.

The repeal may not radically change the banking-fintech business model, said Karen Solomon, senior advisor at Covington & Burling LLP and former senior official at OCC.

“But that will make it more vulnerable to litigation,” she said.

The rule also does not apply to banks regulated by the state and supervised by the Federal Deposit Insurance Corp. FDIC officials have repeatedly stated that they do not have the authority to write a real lender rule and have no intention of doing so.

“In the absence of a rule, it will be much less clear when a bank can claim true lender status. And especially with state banks, state officials can dispute that the bank is the real lender, ”Solomon said.

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