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Senate Takes First Step to Repeal Trump-era ‘True Lender’ Rule

May 11, 2021, 10:53 PM

The Senate voted to repeal a Trump-era rule that would make it easier for banks to partner with fintech lenders without running afoul of state interest rate limits.

The Senate in a 52-47 vote on Tuesday passed a Congressional Review Act resolution to overturn the Office of the Comptroller of the Currency’s “true lender” rule issued in October. Three Republicans joined majority Democrats to support the measure (S.J. 15) sponsored by Sen. Chris Van Hollen (D-Md.) and Senate Banking Committee Chairman Sherrod Brown (D-Ohio).

The CRA allows Congress to repeal a regulation through simple majority votes in both chambers and the president’s signature. The Democratic-controlled House has until the end of the current Congress to follow suit on a resolution (H.J. Res. 35) sponsored by Rep. Jesús G. “Chuy” García (D-Ill.)

The Biden administration, in a statement ahead of the vote, said it supported the Senate resolution.

The OCC’s true lender rule is intended to make it easier for fintechs and other nonbank lenders to issue loans through partnerships with national banks. Critics say it would allow nonbanks to evade state interest rate caps by partnering with national banks located in other states with less restrictive limits.

Brown noted that states including heavily Republican Nebraska and South Dakota have strict 36% interest rate limits. The true lender rule would allow fintechs to get around those caps through so-called “rent-a-bank” schemes, he said in floor remarks.

“We know why these commonsense laws that our states passed are popular, and enjoy bipartisan support in states across the country. People don’t want abusive lenders to prey on them, their loved ones, or their neighbors,” Brown said.

Access to Credit

Lawmakers have used the CRA on just one other Trump-era regulation so far this term. The Senate voted last month to repeal relaxed methane emissions standards for oil and gas wells, but the House hasn’t taken action.

The banking industry has largely opposed the Senate attempt to overturn the true lender rule, and most Republicans opposed the measure.

Sen. Pat Toomey (R-Pa.) said that repealing the rule was a “bad idea” that would harm borrowers who need access to credit.

“These partnerships benefit consumers. By increasing competition in lending markets, they lower the price of financial products, improve credit options, and expand consumer choice,” he said on the Senate floor during debate.

The resolution did gain the support of Republican Sens. Cynthia Lummis of Wyoming, Marco Rubio of Florida, and Susan Collins of Maine. Lummis said in floor remarks that the regulation could “upend parity between state and national banks” by making it easier for national banks overseen by the OCC to partner with fintech lenders.

The CRA bars regulators from putting in place a replacement that is “substantially similar” to a rule repealed by Congress, although courts have not yet weighed in on what that means.

New acting Comptroller of the Currency Michael Hsu on Monday said he plans to undertake a review of existing OCC regulations, potentially including the true lender regulation.

To contact the reporter on this story: Evan Weinberger in New York at eweinberger@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com

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