Lawmakers clash over OCC rule validating loan sales to non-banks

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WASHINGTON – Democratic senators have made clear their hope to block a rule that makes it easier for national banks to sell loans to third parties, but invalidating the measure in the sharply divided Senate could be an uphill battle.

The problem is the ability of banks to partner with non-banks in lending operations while benefiting from interest rate flexibility. Under the Office of the Comptroller rule finalized in October, a national bank is considered the “real lender” if it is named as such in a loan agreement or if it finances the loan.

Banks say the rule is necessary to provide legal clarity when engaging in loan sales across state lines. The “real lender” rule followed an earlier OCC measure that when a national bank grants a loan in accordance with the laws applicable at the time, it will comply when sold elsewhere.

But consumer advocates and many Democratic lawmakers say the rules allow non-banks to engage in “bank hire” programs to evade state usury laws and overcharge customers.

“As we’ve heard, this new so-called ‘real lender’ rule really opens the floodgates for rental banks and predatory lending,” said Sen. Chris Van Hollen, D-Md.

Bloomberg News

“As we’ve heard, this new so-called ‘real lender’ rule really opens the floodgates for rental banks and predatory lending,” Sen. Chris Van Hollen, D-Md., Told a Senate Senate. Hearing of the banking commission this Wednesday.

Van Hollen introduced a resolution last month – along with one in the House – that would overturn the real lender rule under the Congressional Review Act. The law allows Congress to overturn regulations by simple majority, with the support of the president, if lawmakers act within 60 legislative days of the rule’s publication.

“I hope Congress will gather the votes to overturn it,” Van Hollen said.

But whether Democrats have the voices is unclear. Republicans largely oppose the measure, and in general, the Democrats’ majority in the Senate rests on a decisive vote by Vice President Kamala Harris. This means that if only one member of the Democratic caucus votes against the resolution, it will be more difficult to pass it.

Still, Senate Banking Committee chairman Sherrod Brown of Ohio reportedly expressed confidence in the resolution in comments to reporters on Wednesday. Politico has indicated that he has indicated that there may be some Republican support. “I’m pretty sure we’ll do it,” Brown said, according to the outlet. “We have to count the votes. We’re woefully close to 50, or maybe above 50 because there is some Republican interest.”

However, other members of Congress have generally supported the OCC’s approach to the true lender rule, framing the issue as a matter of consumer choice and saying the rule allows for strong competition on the market.

“Contrary to some claims, the rule is not intended to facilitate charter lease agreements when banks are not complying with the law,” said Senator Pat Toomey, senior member of the banking committee of the Senate, during the hearing.

Among the witnesses who testified at the hearing was former Acting Currency Comptroller Brian Brooks. He argued that the OCC rule would allow the agency’s bank examiners to better oversee non-bank activities and crack down on predatory lending.

The rule “provides a clear line as to when the OCC review and enforcement authority applies to ensure compliance with consumer protection and other legal requirements discussed today associated with these types. of loans, ”Brooks said.

But Democrats and consumer advocates testifying at the hearing said the ability of financial institutions to use the real lender rule to evade state usury laws was evident.

“It’s not a tight call, or even a complicated issue,” said Lisa Stifler, director of state policy at the Center for Responsible Lending.

Senate Banking Committee Chairman Sherrod Brown, D-Ohio, equated support for the rule with support for high-cost payday lenders.

“Like so many things we do, it comes down to a question: Which side are you on? Brown said. “You can side with online payday lenders who brag about their creativity in avoiding the law, … or we can stand up for families and small businesses and state attorneys general and state lawmakers who have had enough. said and try to protect themselves. and their states predatory loan schemes. “

Although being designated as the true lender requires a national bank to ensure that a credit product complies with consumer protection laws, then it can partner with a non-bank lender who in turn can avoid capping a state’s interest rates.

“OCC’s hasty and ill-conceived rule is bad for consumers and small businesses, is bad for state rights, reverses centuries of jurisprudence and runs counter to the goal of inclusive economic recovery,” he said. Stifler said.

The OCC tried to dissuade lawmakers from rejecting the rule. Current Interim Controller Blake Paulson written to the Senate Banking Committee in April, arguing that reversing the rule would lead to “regulatory uncertainty” and restrict the availability of credit.

But at the hearing, others argued that the risks to consumers were too great for the rule to stand. Josh Stein, North Carolina attorney general, said the rule would make it much more difficult for state regulators to crack down on predatory lenders.

“This rule, if not reversed, provides a no-get-out of jail card for predatory lenders who violate state laws limiting interest rates and fees on consumer loans,” Stein said. in a prepared testimony.

Toomey argued that the effect of a successful repeal of the “real lender” rule could have the unintended effect of limiting access to credit for vulnerable communities.

“I think the most likely effect is that these loans just won’t be made,” Toomey said. “This is why price control is not the solution. They will exclude people from the banking system, restrict the supply of credit, and make it harder for low-income consumers to access the credit they need.

But consumer advocates rebuffed that argument, saying predatory loans are worse than no credit at all for vulnerable consumers.

“Earlier, people were talking about taking choices away from consumers,” said Rev. Dr. Frederick D. Haynes, III, senior pastor of the West Friendship Baptist Church in Dallas. “And yet, when the options are predatory, you configure them to make choices that will have consequences that, again, cause harm to family and an already underserved community.”

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