Senate Democrats initiate reversal of OCC 'true lender' rule

WASHINGTON — Democratic lawmakers have announced plans to overturn the Office of the Comptroller of the Currency's "true lender" rule, which was intended to address uncertainties about bank partnerships with nonbanks but that critics say enables predatory lending.

Senate Banking Committee Chairman Sherrod Brown, D-Ohio, and Sen. Chris Van Hollen, D-Md., have introduced a Congressional Review Act resolution to reverse the rule, which was finalized in October by former acting Comptroller Brian Brooks.

“The Trump administration ripped consumer protections to shreds, leaving Americans vulnerable to unscrupulous predatory lenders who charge outrageous interest rates,” Van Hollen said. “When this rule was finalized in October, I vowed to use every tool at our disposal to strike it down.”

The Congressional Review Act is a 1996 law that allows Congress to overrule a federal regulation, albeit with certain restrictions. A joint resolution striking down a rule must be passed by simple majorities in both the House and Senate and be signed by the president within 60 legislative says of Congress's formal receipt of a the regulation in question. The OCC rule was passed on October 27, and a spokesperson for Brown's office said the deadline for offering the resolution is April 4.

The OCC’s rule clarifies that a national bank is considered a “true lender” if, at the time of a loan’s origination, it is named as the lender in a loan agreement or if the bank funds the loan. That means the national bank is responsible for ensuring the loan complies with consumer protection laws, but it also means that state interest rate caps do not apply.

Democrats and consumer groups have criticized the regulation as enabling “rent-a-bank” schemes, in which payday lenders can skirt state interest rate caps through national banks.

“For years, under both Democratic and Republican administrations, federal regulators cracked down on abusive ‘rent-a-bank’ schemes in which payday lenders funnel their high-interest, predatory loans through national banks to evade state interest rate caps,” Brown said. “The OCC’s rule is a complete reversal of this policy, a betrayal of hardworking American families, and a shameful attack on states’ ability to protect their citizens from predatory loans.”

Bryan Hubbard, a spokesperson for the OCC, disputed the claim that the agency’s rule enables rent-a-bank schemes.

“The rule prevents harmful ‘rent-a-bank’ arrangements by clarifying that when a bank is the ‘true lender’ of a loan it retains the compliance obligations associated with the origination of that loan, making it easier for the agency to hold banks accountable for improper lending, including loans made in the context of partnership between banks and third parties,” Hubbard said.

If successful, the CRA resolution would also largely bar the OCC from issuing the same rule again. The Congressional Review Act also stipulates that if a rule is struck down through a joint resolution, the issuing agency is prohibited from issuing a new rule "in substantially the same form ... unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution."