Law Strikes Down Rule Allowing Predatory Lenders to Circumvent Borrower Protection Laws, Charge Consumers Outrageous Interest Rates
WASHINGTON – June 30, 2021 – Today, U.S. Senator Chris Van Hollen (D-Md.), a member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, and Committee Chairman Sherrod Brown (D-Ohio) applauded President Biden’s signing of their resolution into law to repeal the Trump Administration’s so-called True Lender Rule through the use of the Congressional Review Act. This regulation, finalized in the last months of the prior Administration, allows predatory lenders to skirt state laws meant to curb interest rates on loans and opens the door for these lenders to prey on vulnerable consumers. According to the Center for Responsible Lending, this rule has allowed predatory lenders to make loans at 100% APR or more in states with limits of 36% or less by laundering loans through an out-of-state bank not subject to state limits.
“Americans deserve consumer protections that work for them – not for special interests and predatory payday lenders. Today’s action to strike down the Trump ‘Rent-A-Bank’ rule will help prevent predatory lenders from ripping off consumers and charging loan-shark rates under deceptive terms. I vowed to use every tool at our disposal to reverse the damage done by the Trump Administration in instating this rule. Today, we’ve delivered on that promise,” said Senator Van Hollen, a member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs..
“Today, we showed the American people that we are on their side,” said Senator Brown, Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs. “This Trump Administration rule that allowed predatory lenders to line their pockets on the backs of hardworking families has been overturned. I applaud the Biden Administration and my colleagues in the House and Senate for coming together to crack down on predatory lenders.”
The legislation was supported by a wide array of stakeholder and consumer protection groups including: a bipartisan group of 25 State Attorneys Generals, the Conference of State Bank Supervisors, the Faith for Just Lending Coalition, Center for Responsible Lending, National Consumer Law Center (on behalf of its low-income clients), Consumer Federation of America, the Military Officers Association of America, the Leadership Conference on Civil and Human Rights, the National Association of Consumer Advocates, the National Association of Federally-Insured Credit Unions, Appleseed Foundation, Consumer Action, National Community Reinvestment Coalition, UnidosUS, U.S. PIRG, and the Woodstock Institute.
The legislation was led by Congressman Jesús “Chuy” García in the House and was cosponsored in the Senate by Senator Jack Reed (D-RI), Senator Elizabeth Warren (D-MA), Senator Catherine Cortez Masto (D-NV), Senator Tina Smith (D-MN), Senator Dianne Feinstein (D-CA), Senator Richard Durbin (D-IL), Senator Sheldon Whitehouse (D-RI), and Senator Jeff Merkley (D-OR).
Most states and the District of Columbia have rules in place to protect consumers from predatory loan rates but banks chartered under federal law are exempt through the National Bank Act. The Office of the Comptroller of the Currency (OCC) rule allows non-bank lenders to use superficial and deceptive partnerships with these banks to skirt state laws and charge outrageous annual percentage rates that have gone as high as 179%. In these “rent-a-bank” schemes, the bank attaches its name to the transaction while the customer deals entirely with the non-bank lender, who markets, underwrites, arranges, and collects payments on the loan.
The Congressional Review Act offers a mechanism for Congress to repeal federal agency rules. Agencies submit their rules to Congress, and it can pass a joint resolution of disapproval to overturn the action under an expedited procedure. The signing into law of this resolution overturns the OCC’s so-called True Lender Rule and ensures that consumers are protected from predatory “rent-a-bank” schemes.