House Votes to Overturn True Lender Rule, Sending Repeal to President’s Desk

Yesterday, House lawmakers voted to pass legislation overturning the Office of the Comptroller of the Currency’s (OCC) “true lender” rule issued in October, which governs partnerships between banks and third-party lenders. In May, the Senate voted to repeal the rule, so it is now headed to the White House for President Biden’s signature.

Acting Comptroller of the Currency Michael Hsu issued a statement after the vote, saying that the OCC would continue to combat predatory lending and expand access to the financial system.

“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,” Hsu said, according to Bloomberg.

Consumer advocates said the rule allowed fintechs to escape state interest rate caps by issuing their loans through national banks that are not subject to those rate caps. Some also alleged that it brings back “rent-a-bank” schemes, as banks only have to provide paperwork on a loan to be considered true lenders, rather than taking an economic stake.

Supporters of the true lender rule, however, argued that its repeal will have a negative effect on fintechs and their customers. Scott Talbot, vice president of government relations at the Electronic Transactions Association, said its repeal “will inject uncertainty into the modern finance system, where banks and fintechs have converged to make credit available to small businesses.”

The repeal might not drastically change the bank-fintech business model, “but it’s going to make it more vulnerable to litigation,” said Karen Solomon, senior of counsel at Covington & Burling LLP, and a former top OCC official.