Banking groups to Congress: Don't throw out 'true lender' rule

WASHINGTON — A group of bank and fintech trade associations urged Congress not to strike down a rule defining the “true lender” in bank-nonbank partnerships, the latest salvo in a long-running fight between consumer groups and financial firms.

The rule, finalized by the Office of the Comptroller of the Currency in October, has come under significant scrutiny from Democrats on Capitol Hill in recent months. Consumer advocates say the regulation would make it far easier for predatory lenders to evade state interest rate caps.

But in a letter dated May 6 addressed to Senate leadership, the trade groups asked Congress to reject Senate Joint Resolution 15, introduced by Sen. Chris Van Hollen, D-Md., in March. If approved through a simple majority vote, the resolution would throw out the OCC’s rule using the Congressional Review Act.

“Changes should be made to the True Lender Rule,” the groups conceded in the letter. But they also cautioned that a congressional rejection “would create significant legal impediments to creating a much-needed framework for providing safe and affordable credit to consumers.”

Under the Congressional Review Act, Congress has the authority to undo policy actions taken by federal regulators. If a regulation is successfully blocked by Congress, future regulators are prevented from issuing a subsequent rule that is “substantially the same” as what was struck down.

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The trade associations — including the American Bankers Association, American Fintech Council, Consumer Bankers Association, Electronic Transactions Association, Independent Community Bankers of America and the Mid-Sized Bank Coalition of America — said that constraint could seriously impede the OCC from issuing an improved “true lender” rule in the future with more built-in consumer protections.

“A vote of disapproval using the CRA would prevent the OCC from considering whether other factors could supplement the agency’s true lender framework,” the trade groups wrote. “We believe the True Lender Rule could be improved if it establishes expectations for regulatory compliance and consumer protection that will limit the risk of predatory and abusive lending.”

“Invalidation of the True Lender Rule removes that opportunity to create a more fulsome true lender framework,” the groups said.

Democrats on Capitol Hill are likely approaching a key deadline on the matter. Under the Congressional Review Act, legislators must vote to overturn a regulation within 60 legislative days of its publication in the Federal Register.