Today, the US. House of Representatives voted 218-208 in favor of H.J. Resolution 35, a Congressional Review Act resolution concurrent to S.J. Resolution 15, to nullify the harmful Trump-era True Lender rule.
The True Lender rule, National Banks and Federal Savings Associations as Lenders, originally finalized in October 2020 by the Office of the Comptroller of the Currency (OCC), permitted national banks to use their charters to facilitate loans through rent-a-bank relationships with predatory lenders. With today’s action, the resolution heads to President Biden for his signature.
Jesse Van Tol, CEO of the National Community Reinvestment Coalition (NCRC), made the following statement:
“We celebrate the results of today’s vote that defends consumers and takes back the rights of states to enforce their laws against predatory lending. Today, the House has joined the Senate in rolling back one of the most egregious rules of the prior leadership at the OCC.
“The American people have expressed their opposition to the kinds of high-cost loans that the True Lender rule permitted. Today’s vote affirms the positions of a broad-based coalition of faith-based groups, veterans organizations, consumer advocates and civil rights groups, and state Attorneys General.
“We would like to thank the leadership of Senator Chris Van Hollen (D-MD) and Chair Sherrod Brown (D-OH), who championed the resolution in the Senate and Reps. Chuy Garcia (D-IL) and Chairwoman Maxine Waters (D-CA), who championed the resolution in the House.”
Background on today’s action
Rep. Glenn Grothman (R-WI) joined with Democrats in support of the resolution.
On May 11, the White House released a statement in support of the resolution, and the president is expected to sign it.
In October 2020, when the OCC finalized the rule, it permitted national banks to create evasionary partnerships with payday lenders that would have enabled those lenders to make high-cost loans in spite of state laws that would have made them illegal. The OCC’s True Lender rule claimed that if the bank’s name on the loan contract, or if the funds were disbursed by the bank to the consumer, then it would consider the bank to be the issuer of the loan and not the non-bank predatory lender.
By outlining the requirements for using preemption, the OCC chose to ignore the substance of the rent-a-bank model and to evaluate these partnerships solely by their technical structure. In practice, even if the arrangement meets the terms defined by the OCC, rent-a-bank predatory lenders take the predominant role of lending. The bank allows the partner lender to manage the marketing, the loan closing, the servicing, and typically sells the loan or virtually all of the loan back to the predatory lender in only one to three days.
Before October, many state Attorneys General had brought lawsuits against these kinds of rent-a-bank partnerships. For example, District of Columbia Attorney General Karl Racine sued Elevate Credit in June 2020, alleging that Elevate made loans at interest rates of 99% and 251%, or up to 42 times the legal limit.
For example, VergeCredit and Avio partner with OCC-regulated Stride Bank to make installment loans with rates as high as 179 percent. World Business Lenders partners with OCC-regulated Axos Bank to make small business loans with rates as high as 250 percent.
NCRC had previously urged the new leadership at the OCC to drop its opposition to Congressional efforts to block the rule that allowed banks to issue triple-digit interest rate loans on behalf of payday lenders to help them evade state consumer protections. In May, NCRC members met with 48 Representatives from 26 states and 70 Senators from 35 states to express their support for the resolution as part of NCRC’s annual Just Economy Conference.
