The House voted to repeal a Trump administration rule that would make it easier for banks and fintech lenders to partner up without violating state law.
House lawmakers on Thursday voted 218 to 208 to repeal the Office of the Comptroller of the Currency’s “true lender” rule, issued last October to shield any fintech loan issued in partnership with a national bank from being subject to state laws, including caps on interest rates.
Democrats voted unanimously to repeal the regulation, with one Republican—Rep. Glenn Grothman of Wisconsin—joining them. Grothman is a co-sponsor of legislation that would cap interest rates at 36% nationwide.
The Senate May 11 voted to overturn the rule, adopting a resolution (S.J.Res. 15) under the Congressional Review Act. The CRA allows Congress to repeal regulations 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 issued after the vote Thursday, acting Comptroller of the Currency Michael Hsu said he respected Congress’ action and that the OCC would continue its efforts to expand access to the financial system while combating predatory lending.
“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,” he said.
Interest Rate Caps
The OCC adopted the true lender rule under the leadership of former acting Comptroller Brian Brooks.
Repealing the rule will have a negative effect on both fintechs and their customers, said Scott Talbot, vice president of government relations at the Electronic Transactions Association, a payments industry trade association.
“Invalidating the regulation will inject uncertainty into the modern finance system, where banks and fintechs have converged to make credit available to small businesses,” he said.
But consumer advocates said the rule provided paths to fintechs to evade state interest rate caps by issuing their loans through national banks, which aren’t subject to those restrictions.
Illinois in March became the most recent state to adopt a 36% interest rate cap. South Dakota and Nebraska both adopted 36% interest rate caps through popular referendums in 2016 and 2020, respectively, even as voters in the states in those years overwhelmingly supported former President Donald Trump.
The rule brings back “rent-a-bank” schemes that existed in the past, critics say, noting that banks just have to provide paperwork on a loan—rather than taking an economic stake—to be considered true lenders.
“It is nothing but harmful. It is an existential threat to state interest rate limits that protect consumers from predatory lending, that have been in place since the founding of the country in many states,” said Lisa Stifler, director of state policy at the Center for Responsible Lending.
Democratic state attorneys general sued to block the regulation soon after it was finalized, so it never fully took effect. And banks had partnered with fintechs and other nonbank lenders before the OCC issued the final rule.
The repeal may not radically change the bank-fintech business model, said Karen Solomon, senior of counsel at Covington & Burling LLP and a former top OCC official.
“But it’s going to make it more vulnerable to litigation,” she said.
The rule also doesn’t apply to state-regulated banks that are overseen by the Federal Deposit Insurance Corp. FDIC officials repeatedly have said they don’t have the authority to write a true lender rule and have no plans to do so.
“Absent the rule, it’s going to be much less clear when a bank can claim true lender status. And particularly with state banks, state officials may challenge when the bank is the true lender,” Solomon said.