Biden signs off on repeal of OCC’s ‘true lender’ rule

On June 24, the House voted 218-210 to pass a Congressional Review Act resolution repealing the rule. This followed a similar vote from the Senate in May. The repeal was signed by President Joe Biden on June 30.

The rule, which was finalized in October, “specifie[d] that a bank makes a loan and is the true lender if, as of the date of origination, it (1) is named as the lender in the loan agreement or (2) funds the loan.” The rule was intended to bolster accountability for banks regarding their third-party partners, clarifying which lender in the arrangement is responsible for following all federal banking laws.

Democrats had excoriated it, labeling it as the ‘fake lender’ rule that would encourage unscrupulous lenders to pair with federally insured financial institutions in “rent-a-bank” schemes.

“This ‘fake lender’ rule green lights rent-a-bank schemes in which predatory lenders evade bank interest rate limits to swindle vulnerable consumers,” House Speaker Nancy Pelosi (D-Calif.) said in comments to the House before the vote. “This is done by putting a bank name on loan paperwork and claiming that the bank, not the predatory lender, issued the loan. To take one example, in California, where the interest rate on a two-year, $2,000 loan is capped at 25 percent, lenders can rent-a-bank partnership to make loans with rates up to 225 percent.”

The rule, however, had the support of many financial institutions that were hoping it would provide clarity in lending relationships between the traditional banking sector and nonbank technology firms.

The existing situation allows for uncertainty, according to the American Bankers Association, which represents many of the country’s banks. That uncertainty can discourage lending and reduces access to affordable credit, the ABA said.

“Creating a regulatory framework that provides certainty as to the validity of loans originated by responsible bank-fintech partnerships will have tangible benefits for borrowers seeking affordable access to credit and to market participants, which will promote economic growth,” the ABA wrote last year in a comment to the OCC in favor of the rule. “The development of an appropriate regulatory framework to govern these partnerships is an important but complex undertaking. We appreciate that the OCC has initiated a rulemaking to establish such a framework.”

The OCC, under new leadership since the rule was finalized, indicated it will return to the drawing board on the matter.

“Moving forward, the OCC will consider policy options, consistent with the Congressional Review Act, that protect consumers while expanding financial inclusion. Both of these priorities are part of the agency’s mission of ensuring that national banks and federal savings associations provide fair access to financial services for all Americans and that customers are treated fairly,” Acting Comptroller of the Currency Michael Hsu said June 24 in a statement.

Editor’s note: This story was originally published June 25 and updated to reflect President Biden signing the repeal into law June 30.