Legislation recently introduced in Congress last week would repeal the Trump administration’s True Lender Rule.
This regulation, finalized in the final months of the prior Trump Administration, allows predatory lenders to skirt state laws meant to curb interest rates on loans.
“The Trump Administration ripped consumer protections to shreds, leaving Americans vulnerable to unscrupulous predatory lenders who charge outrageous interest rates. When this rule was finalized in October, I vowed to use every tool at our disposal to strike it down. Today, we’re one step closer to fulfilling that. We will not let this rule stand – nor will we sit idly by as predatory lenders attempt to take advantage of hardworking Americans,” Sen. Chris Van Hollen (D-MD), one of the bill’s sponsors, said.
Most states have rules in place to protect consumers from predatory loan rates. However, federally-insured banks are exempt through the Federal Deposit Insurance Act. The rule in question allows non-banks to use partnerships with banks to skirt state laws and charge higher annual percentage rates – some as high as 179 percent. The lawmakers call this a “rent-a-bank” schemes, where the bank attaches its name to the transaction while the customer deals entirely with the non-bank lender.
“Congress must overturn this harmful Trump Administration Rule rule that eviscerates state consumer protection laws and allows unregulated payday lending across the nation. For years, under both Democratic and Republican administrations, federal regulators cracked down on abusive “rent-a-bank” schemes in which payday lenders funnel their high-interest, predatory loans through national banks to evade state interest rate caps. The OCC’s rule is a complete reversal of this policy, a betrayal of hard-working American families, and a shameful attack on states’ ability to protect their citizens from predatory loans,” Sen. Sherrod Brown (D-OH), one of the bill’s sponsors, said.
The Congressional Review Act offers a way for Congress to repeal federal agency rules. This bill would overturn the Office of the Comptroller of the Currency’s so-called True Lender Rule.
“Predatory loans trap working families into cycles of debt they can’t pay off, and the Trump Administration’s True Lender Rule helps lenders get around state laws that protect consumers. Just this week, Illinois enacted a law that caps interest rates on consumer loans at 36 percent, but my constituents won’t be fully protected until the True Lender Rule is repealed,” Rep. Jesús “Chuy” García, another of the sponsors, said. “People are struggling to make ends meet due to the economic crisis caused by the COVID pandemic, and more vulnerable than ever to predatory loans.”
It is co-sponsored by Sens. Jack Reed (D-RI), Elizabeth Warren (D-MA), Catherine Cortez Masto (D-NM), Tina Smith (D-MN), and Dianne Feinstein (D-CA).
“We applaud Senators Van Hollen and Brown and Rep. Garcia for taking the first step to overturn this harmful rule,” Lisa Stifler, director of State Policy for the Center for Responsible Lending, said. “The ‘fake lender’ rule gives predatory lenders a roadmap to evade state consumer protections while consumers get weak, vague standards from an agency that has too often failed to protect consumers.”