Congress repeals Trump-era rules on payday lenders


The House of Representatives voted 218 to 208 to unseat the Comptroller of the Currency for payday lending, with one Republican voting with Democrats

Congress on June 24 repealed a series of regulations enacted in the final days of the Trump administration that effectively allowed payday lenders to circumvent state laws capping interest rates.

The House of Representatives voted 218 to 208 to unseat the Comptroller of the Currency for payday lending, with one Republican voting with Democrats.

Thursday’s vote to repeal the OCC’s True Lender Rules marked the first time Democrats in Congress successfully used the Congressional Review Act to repeal rules.

The law was enacted in the mid-1990s and gives Congress the power to overrule federal agency rules and regulations with a simple majority in the House and Senate. Their powers are limited to a specific period of time after an agency has finalized its regulations, usually around 60 legislature days.

The Senate voted 52 to 47 on May 11 to repeal the OCC rules. The bill now goes to President Joe Biden, who is expected to sign it.

By repealing the Trump administration rule enacted in late 2020, Democrats sought to curb a practice of payday loans that critics had dubbed the “rent-a-bank” program.

While payday lenders are regulated at the state level, the payday lender would work with a bank with a national banking charter when issuing expensive installment loans. Because a national bank is not resident in a single state, it is not subject to the usury laws of each state.

“Government interest rate limits are the easiest way to stop predatory lending, and the OCC rules would have circumvented them entirely,” said Lauren Saunders, deputy director of the National Consumer Law Centre, a consumer advocacy group.

This isn’t the first time Rent-a-Bank has been an issue. Federal regulators cracked down on this practice in the 1990s, but with the proliferation of online banking and fintech companies specializing in online-only financial services, the practice is growing again.

An example of how the practice works can be seen at Elevate, a Texas-based fintech that offers expensive installment loans like payday loans.

Elevate offers loans in several states, including Arizona, where by law interest rates on payday loans are capped at 36 percent. Because Elevate uses Utah and Kentucky banks to originate these loans, Elevate is able to originate loans in Arizona for up to 149 percent. In other states, Elevate makes loans with annual interest rates of up to 299 percent.

In a statement, Mr Biden’s appointee to the Comptroller of the Currency said he would “respect” Congress if it repealed its regulations.

“I want to reiterate the agency’s long-held position that predatory lending has no place in the federal banking system,” Michael J. Hsu, acting comptroller for the currency, said in a statement.

While Thursday’s vote was a first for Democrats, former President Donald Trump and a Republican-controlled Congress used the Congressional Review Act when they came to power in 2017, repealing 15 rules and regulations that had passed in recent years days of the Obama administration.

Before Trump, the law was only used once, in 2001, when Republicans in Congress voted to repeal a series of ergonomics regulations enacted on the last day of the Clinton administration.


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