Senate Democrats call on OCC to revoke Trump-era ‘real lender’ rule
Democrats on the Senate Banking Committee on Wednesday targeted a Trump-era rule they say allows lenders to bypass state interest rate caps and charge high rates to the country’s most vulnerable borrowers .
The “real lender” rule is in question, developed by the Office of the Comptroller of the Currency (OCC) in October.
The rule is that a bank will be the true lender on loans made in partnership with third parties if, on the inception date, it finances the loan or is named as a lender in the loan agreement. If a bank is named the lender in the loan agreement and another bank funds the loan, the first is the real lender, the BCC said last fall.
The rule allows fintechs or other non-bank lenders to offer loans at higher interest rates than the state in which they are licensed by partnering with a bank licensed in a state with a cap of higher interest rate.
Supporters of the rule say it brings regulatory clarity and expands access to credit, while Democrats and consumer advocates Argue it allows non banking to take advantage of vulnerable borrowers.
During Wednesday’s hearing, Senate Banking Committee Chairman Sherrod Brown, D-OH, called on the OCC to repeal the rule, saying it was “rushed” by the acting supervisor of the Brian Brooks, and the agency’s current acting head, Blake Paulson.
“The last thing we should do is encourage lenders, in their own words, to innovate, when we know that just means they get away with scamming people,” Brown said in his speech. opening. “You can stand by online payday lenders and brag about their creativity and avoid the law as they find new ways to prey on workers and their families, or we can stand up for families. and small business and attorneys general and state lawmakers who have said, “Enough.”
The hearing follows a resolution introduced last month by Sen. Chris Van Hollen, D-MD, that would revoke the real lender rule through the Congressional Review Act. The law allows Congress to rescind rules made by federal agencies within 60 legislative days of the rule’s publication.
Senior panel member Senator Pat Toomey, R-PA argued that rescinding the rule would exclude high-risk borrowers from the lending system.
“I suspect the motivation for overturning the rule is that it would subject more loans to state interest rate caps, but that may not be the effect,” he said. declared. “I think the most likely effect is that these loans will just not be made. That’s why price controls are not the solution. They will exclude people from the banking system, they will restrict their supply of credit and will make it harder for them to get consumers to access the credit they need. “
A “robust competitive market” is the best form of consumer protection, Toomey said.
“Preserving regulatory certainty and clarity through the true lender rule advances this cause,” he added.
The battle for rule comes as the Biden administration has yet to appoint a new OCC chief. Brooks, who published the rule, resigned from the agency in January, leaving Paulson, the former COO of the OCC, in his place.
Paulson, a strong supporter of the True Lender Rule, wrote to lawmakers this month about the “misperceptions” surrounding the rule and that rescinding the regulation would have a “negative impact.” according to Politico.
Alysa James, spokesperson for Brown’s office, said it was “outrageous for the current interim controller to advocate for this harmful rule.”
“Her letter to Congress is very irregular, inappropriate and contains misleading statements,” she told Politico.
Meanwhile, Brooks, who was recently appointed CEO cryptocurrency exchange Binance.US, told lawmakers during Wednesday’s hearing that any concerns about non-bank or fintech abuse of the real lender rule should be addressed by states. in which they are approved.
“Payday lenders and the others who are often criticized are state-licensed businesses, and if the state has serious concerns about them, they are of course free to revoke their licenses and take other action. “, did he declare. “The problem here is with price controls, and I would ask you to consider price controls as causing shortages.”
Senate Republicans challenged what they saw as Democrats’ attempt to limit consumer choice over the real lender rule.
“The idea that we should deny people access to loans because they can’t be trusted to make a good decision for themselves – does that sound a little patronizing and patronizing to you?” Asked Toomey.
“I don’t see interest as a bad thing,” Brooks said. “If I’m someone with dings on my credit and need a two-year personal loan to replace my roof or do one of the many things people use these loans for, I don’t think so. not for me to say that’s a bad thing. “
Columbia Business School professor Charles Calomiris told lawmakers that amid the real debate about lenders, fintech-banking partnerships should not be confused with payday lenders, but should be seen as an alternative to them.
“[These partnerships] are pushing low income, low dollar borrowers to much lower interest rates. This is what is at stake here. I think we have a pretty serious description of these new, very flexible and innovative partnerships that are really empowering consumers, ”he said.
Meanwhile, Lisa Stifler, director of state policy at the Center for Responsible Lending, has warned lawmakers not to be fooled by “ploys” dressed in a “fintech aura.”
“The loans that we see are always extremely expensive and extremely predatory,” she said.