WASHINGTON—With both credit union trade groups having earlier expressed support for doing so, by a 52 - 47 vote , the Senate has voted to overturn the what the OCC calls its "true lender" rule, but which critics have called the “fake lender” rule and a "rent-a-bank" scheme.
As CUToday.info has reported, the true lender rule, which was enacted under the Trump administration, allows banks and federal savings and loan companies to provide their charter to online lenders. The result, according to many, is to have allowed many non-banks to offer high-cost loans with annual rates over 100%, evading state consumer protections and usury caps and promoting predatory payday lending.
S.J. Res. 15, a resolution under the Congressional Review Act, was introduced by Sen. Chris Van Hollen (D-MD) and Sherrod Brown (D-OH). Rep. “Chuy” García introduced a parallel resolution, H.J. Res. 35, in the U.S. House of Representatives. Now that the Senate approved the resolution, the House has until the end of this legislative session to vote on it.
Numerous consumer groups and others applauded the Senate vote and urged the House to act quickly to prevent a massive expansion of predatory lending in all 50 states. Republican Senators Cynthia Lumis (R-WY), Susan Collins (R-ME), Marco Rubio (R-FL) joined with Democrats in passing the resolution
“The bipartisan vote in the Senate shows the importance of repealing the OCC fake lender rule now because it is doing active harm right now, defending a predatory business model that destroys small businesses, homes, and lives,” said National Consumer Law Center Associate Director Lauren Saunders. “Congress must act because it could easily be two years or more before the rule could be repealed through rulemaking, and small business and families devastated by COVID, especially in Black and Brown communities, cannot wait.”
According to the NCLC, predatory small business lenders are using the fake lender rule today to defend a 268% APR rate on loans totaling $67,000 to a restaurant owner in New York, where the criminal usury rate is 25%, secured by property in New Jersey, where the legal limit is 30%. For example said the NCLC, OppLoans (aka OppFi), an online lender offering 160% APR loans in 26 states that prohibit triple-digit rate loans, cited the OCC’s fake lender rule in defense of its loan to a disabled veteran in California, where the legal rate on the loan is 24%. OppLoans is evading state rate cap laws supported by broad majorities of voters in Arizona, Montana, Nebraska, and South Dakota; and also laws approved by legislatures in Maine, Ohio, and other states.
“Today’s Senate vote to overturn the fake lender rule shows bipartisan disapproval of the harmful rent-a-bank model that is being used by predatory payday and installment lenders to make triple-digit interest rate loans that are illegal across the country,” said Rachel Gittleman, financial services outreach manager with Consumer Federation of America. “Now, the U.S. House of Representatives must act to protect consumers, especially small business owners, still reeling from the fallout from the COVID-19 pandemic.”
Credit Union Support
Prior to the vote, both credit union trade groups had expressed support for use of the Congressional Review Act to nullify the rule.
Several states have filed suit against the OCC to try to overturn the rule, and more than two-dozen state attorneys general have signed a joint letter to the OCC calling for the rule to be rescinded.
"Rather than pursuing problematic options like the OCC’s True Lender rule to increase access to credit, we would suggest Congress consider consumer-friendly alternatives such as expanding credit unions’ ability to offer [payday alternative loans (PALS)]," wrote Vice President of Legislative Affairs Brad Thaler in a letter to the Senate. "Too many Americans are unbanked, underbanked, or underserved by financial institutions, and do not have the access that they need to financial services. Credit unions stand ready to help with financial literacy education and access to loans and other financial products, including PALs, but many are limited in their ability to add underserved areas to their fields of membership.
"Allowing all credit unions to add underserved areas to their fields of membership is one way to help those who need it most have access to capital without burdening the federal government. This request has bipartisan NCUA Board support," Thaler continued.
Affordable Option
Thaler explained that PALs offered by credit unions are "a safe, affordable option for consumers in need of a quick, short-term, small-dollar loan" at a significantly lower interest rate than those offered by predatory payday lenders.
The Senate Banking Committee recently held a hearing to discuss the reemergence of rent-a-bank schemes as a result of the true lender rule.
During a call earlier this week with the media, CUNA’s chief advocacy officer, Ryan Donovan, said it also had planned to send a letter expressing support for use of the CRA to overturn the true-lender rule.