Senate votes to strike down OCC True Lender Rule

The Senate passed a resolution to repeal the True Lender Rule, a rule that sets parameters for partnerships between banks and third-party lenders.

Why should we care?
The True Lender Rule, which was passed during the Trump administration, established when a national bank or federal savings association makes a loan and is the “true lender,” including in the context of partnerships between banks and third-party lenders, including payday lenders. Democrats and consumer groups oppose this rule because it allows third-party lenders to skirt state interest rate caps by partnering with out-of-state banks. Under the True Lender rule, lenders can export interest rates from one state to another when partnering with an out-of-state bank, offering loans that would otherwise be illegal. But some lenders – including certain fintechs – counter that the True Lender Rule allows them to reach credit-challenged customers. To them, these loans are necessarily high-cost products. Critics argue that they are predatory, calling them “rent-a-bank” schemes that allow lenders to exploit loopholes. The resolution will now go to the Democratic-controlled House, where it is expected to pass. Digital loan servicer OppFi expressed disappointment with the Senate vote, and will continue to operate a “strong and thriving business.” A spokesperson for OppFi told TheFR that the rule “eliminated confusion, uncertainty and legal risk for banks and their counterparties to enter into the small-dollar lending space, and increased financial inclusion as well as expanded nationwide availability of credit on reasonable terms.”