Senate Votes to Repeal True Lender Rule

Last week, the U.S. Senate voted 52-47 in support of a resolution that would repeal the Office of the Comptroller of the Currency’s (OCC) “true lender” rule governing partnerships between banks and third-party lenders.

These arrangements have come under fire from some in Congress who allege that the partnerships are a way for non-bank lenders to evade state rate caps.

“States are taking measures to protect their constituents and their consumers against these end-runs around their laws designed to prohibit these predatory practices,” said Senator Chris Van Hollen (D-Md.), according to The Hill.

According to an article in Reuters, when the OCC drafted the true lender rule, it was aiming to give legal clarity to lenders as to whether they had to follow state or federal laws. In October 2020, the OCC issued a rule to specify who the true lender of a loan is in a partnership between a nationally chartered bank and a third party, usually a non-bank lender.

Additionally, a coalition of Democratic state attorneys general sued the OCC in January, arguing that the rule violated both federal consumer protection laws and the OCC’s authority. “This is a basic tenet of states maintaining sovereignty within their own borders, limited only by the U.S. Constitution and federal law,” said Senator Cynthia Lummis (R-Wyo.).

Senator Pat Toomey (R-Pa.), Ranking Member on the Senate Committee on Banking, Housing, and Urban Affairs, opposed the measure.

“Unfortunately, a patchwork of different legal tests in different courts makes it difficult to predict whether the bank or the fintech partner will be considered legally responsible for the loans,” Toomey said in remarks prepared for delivery on the Senate floor. “Last year, the OCC issued its True Lender rule to provide much-needed regulatory clarity. This rule holds a national bank responsible for a loan if it is named in the loan agreement or it funds the loan.”

Toomey also noted that the rule prevents so-called “rent-a-charter” arrangements. The rule “ensures that national banks are accountable for the loans they issue through lending partnerships, and requires the OCC to supervise the loans for compliance with consumer protection and anti-discrimination laws,” he said.

The resolution will now head to the House of Representatives for further action.