House passes bill to repeal OCC ‘true lender’ rule

The House on Thursday passed a bill to repeal a rule meant to clarify who bears responsibility for loans issued through arrangements between banks and non-bank lenders.

Lawmakers voted 218-210 to pass a Congressional Review Act (CRA) resolution revoking the Office of the Comptroller of the Currency’s (OCC) “true lender” rule with only one Republican voting with 217 Democrats.

The resolution passed the Senate in May and now heads to President Biden, who supports repealing the OCC rule. Once Biden signs the resolution, the agency will be banned from issuing another similar regulation. 

The OCC in October issued the true lender rule to govern partnerships between banks and third-party lenders that allow consumers to take loans with interest rates above the maximum rate set in that borrower’s state.

There are conflicting rulings from federal district courts on whether such loans are subject to state interest laws if they were initially issued by a bank. Banks can follow the interest rate limits of their home jurisdiction even when lending across state lines, but other financial firms cannot.

The OCC rule specified that the true lender of the loan is the party that is either listed as the true lender or funds the loan.

Democratic lawmakers and consumer rights groups argued that the rule left consumers vulnerable to predatory lending schemes.

In a speech on the House floor before the vote,  Speaker Nancy Pelosi (D-Calif.) denounced the “fake lender rule” as one of  former President Trump’s  “most egregious assaults on families’ well-being.”

Pelosi and other critics of the rule argue that it would revive so-called “rent-a-bank” schemes, in which a lender sets up a temporary partnership with a bank from another state only to lend to a customer at a higher interest rate.

“This vote ends the Trump administration’s enabling of predatory lending in blatant violation of state consumer protection laws,” said Linda Jun, senior policy counsel for Americans for Financial Reform, a nonprofit that supports stricter financial rules.

“Congress now needs to take the next step and pass a federal interest rate cap to ensure that borrowers around the country have protections from high-interest loans that drag people into a cycle of debt.”

But former acting Comptroller Brian Brooks — a Trump appointee who issued the rule last year — and congressional supporters of the rule argued that it creates a clear standard that holds banks accountable to federal laws. 

“This legal clarity fosters bank and fintech partnerships to provide their customers with the financial products they want and need,” said Rep. Patrick McHenry (N.C.), the top Republican on the House Financial Services Committee, during a Thursday floor speech.”

“The true lender rule was not some sinister plan by the previous Administration to trick borrowers. It is good, bipartisan policy that provides clarity to banks and fintechs so they can better serve their customers. That’s it,” he added.