The U.S. President Joseph R. Biden Jr. signed into law a Bill (S.J.Res. 15) that nullifies the “true lender rule,” which OCC had issued in October 2020. The rule determined when a national bank or a federal savings association makes a loan and is the “true lender,” including in the context of a partnership between a bank and a third party. The Acting Comptroller of the Currency, Michael J. Hsu, has issued a statement on the U.S. House of Representative’s vote to overturn the true lender rule of OCC. In the statement, Mr. Hsu emphasized that, going forward, OCC will consider policy options, consistent with the Congressional Review Act, that protect consumers while expanding financial inclusion.
The true lender rule required that a national bank or a federal saving association must, as of the date of origination of the loan, be named as the lender in the loan agreement or fund the loan for it to be considered a lender. The rule also specified that if, as of the date of origination, one bank is named as the lender in the loan agreement for a loan and another bank funds that loan, the bank that is named as the lender in the loan agreement makes the loan. The rule was controversial, as it was believed to have allowed "predatory lenders to evade State usury laws and target consumers with high interest rate loans of 150% or higher through sham partnerships with banks." The OCC's rule was claimed to have undone centuries of case law that ensured that nonbank financial institutions were subject to State interest rate caps when they partnered with banks, so long as they held the primary economic interest in a consumer loan. The OCC rule allowed nonbanks to launder their loans through OCC-chartered banks, as long as the bank is listed on the loan origination documents, effectively allowing nonbanks to ignore State usury laws. The rule was thought of by some as a backdoor way for nonbanks to charge triple-digit interest rates on loans at the expense of consumers in States where voters turned out to pass interest rate cap laws, with some also calling it the ``fake lender'' rule.
- News Release on Signing of Bill
- Signed Bill (S.J.Res.15)
- Congressional Record (PDF)
- Statement of Acting Comptroller
- True Lender Rule, October 2020
Keywords: Americas, US, Banking, True Lender Rule, Credit Risk, Loan Origination, White House, US Government, Lending, OCC
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