US Democratic Lawmakers Seek To End “Predatory” Banking Rule

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WASHINGTON (Reuters) – U.S. Democratic lawmakers will seek to repeal a regulation introduced under the administration of former President Donald Trump that they say allows predatory lenders to bypass state consumer protections – a setback for them. FinTech companies that should benefit from the rule.

FILE PHOTO: Senator Chris Van Hollen (D-MD) chats with Ajit Pai, chairman of the Federal Communications Commission, during a watchdog hearing to review the Federal Communications Commission’s spectrum auction program for Exercise 2021, at Capitol Hill in Washington, DC, United States, June 16, 2020. Toni Sandys / Pool via REUTERS / File Photo

Senator Chris Van Hollen and Senate Banking Committee Chairman Sherrod Brown on Thursday announced the introduction of a Senate resolution to repeal the so-called “real lender” rule. Congressman Chuy Garcia is expected to present a version of the resolution to the House of Representatives on Friday, his office said.

The measure represents the first here Congressional Democrats’ decision to try to overturn one of many Trump-era regulations that they and advocacy groups say hurt consumers and increase systemic risk.

The resolution, if passed, would overturn the rule using the Congressional Review Act, a 1996 statute that allows Congress to overturn recently finalized federal regulations. The passage would only require a simple majority vote in both chambers. Democrats hold a slim majority in the House and Senate.

Removing the “real lender” rule, which was introduced by the Office of the Comptroller of the Currency (OCC) last year, would deal a blow to fintech companies that wanted legal certainty as to whether state rules or federal applied when partnering with traditional lenders.

Democrats have argued that the rule allows fintech companies to evade state usury laws and rate caps by partnering with banks subject to softer federal lending rules.

“We will not let this rule in effect – and we will not stand idly by as predatory lenders try to take advantage of hard-working Americans,” Van Hollen told Reuters in a statement.

Brown in a statement called the rule a “shameful attack on the ability of states to protect their citizens from predatory loans.”

“Predatory lending has no place in the federal banking system,” OCC spokesperson Bryan Hubbard said in a statement. “Rather than encouraging predatory lending, the OCC rule provides regulatory certainty regarding a bank’s responsibility and accountability for loans.”

The OCC said when finalizing the rule in October that it aimed to clarify who is considered the “real lender” when institutions team up to issue a loan, which in turn would determine the requirements on which loans must meet.

The OCC has determined that if the bank is named as the lender in the loan agreement, the relevant banking rules apply. In the case of nationally chartered banks, for example, federal banking rules – generally more flexible when it comes to lending rates – would apply to the loan.

The OCC said the current legal uncertainty over the rules applicable to such partnerships risked crippling innovative lending relationships, which in turn could restrict access to affordable credit.

On Monday, a coalition of liberal activists called here lawmakers to repeal the rule, saying it allows lenders “to charge triple-digit interest rates, target financially vulnerable people and communities of color, and trap consumers in devastating debt cycles “.

In January, seven US states and Washington, DC, sued the OCC to overturn the rule.

The Congressional Review Act is seen as a brutal but powerful legal tool, as it prohibits agencies from writing a substantially similar rule in the future.

Industry groups have said that if the effort to reverse the regulation is successful, the overall effect could be a reduction in credit for consumers.

Reporting by Katanga Johnson and Pete Schroeder; Editing by Michelle Price and Will Dunham

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