House next, final stop for resolution repealing OCC’s ‘true lender’ rule

The House is expected to pass legislation that would repeal the controversial “true lender” rule adopted last fall by the federal regulator of national banks, joining the Senate which adopted the legislation Tuesday.

In a 52-47, bipartisan vote, the Senate yesterday adopted a resolution invoking the Congressional Review Act (CRA), which allows Congress to repeal rules adopted by federal regulators within a certain time frame. House leaders have indicated they would take up the measure and pass it there, sending it on to President Joe Biden (D) for his signature. According to reports, the White House said Tuesday it supports the repeal resolution, saying that the Office of the Comptroller of the Currency (OCC) rule “undermines state consumer protection laws and would allow the proliferation of predatory lending.”

The “true lender” rule – adopted by the OCC in October (and which took effect Dec. 29) after being initially proposed in July – determines when a bank is a “true lender” within the context of a partnership between it and a third party.

According to the OCC, the rule specifies that a bank makes a loan and is the true lender if, as of the date of origination, it, first, is named as the lender in the loan agreement; or second, funds the loan.

The agency said its regulation also specifies 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.

Finally, the OCC said last fall, the final rule clarifies that as the true lender of a loan, the bank retains the compliance obligations associated with the origination of that loan, “thus negating concern regarding harmful rent-a-charter arrangements.”

However, consumer groups and others have criticized the rule, saying it leaves customers vulnerable to predatory “rent-a-bank” schemes, in which an agreement is made between a bank and a third party to advance the loan – but then the bank takes over the loan once the transaction is completed. Critics say the amounts to an “end-run” around state laws meant to prohibit that practice (among others), which have been called “predatory” by some.

Office of the Comptroller of the Currency Issues True Lender Rule