With House vote to overturn ‘true lender,’ OCC vows to respect congressional wish

With the House voting Thursday to join the Senate in overturning the “true lender rule” by the federal regulator of national banks, the acting chief of the agency said it would respect the decision by Congress.

The House measure — a Congressional Review Act (CRA) resolution — passed on a vote of 218-210. It revokes the Office of the Comptroller of the Currency’s (OCC) “true lender” rule; one Republican voted with 217 Democrats in approving the resolution.

The measure now heads to the desk of President Joe Biden (D), who has indicated he will sign it into law. Once he does, the “true lender” rule will be revoked.

“We respect the role of Congress in reviewing regulations under the Congressional Review Act,” said Acting Comptroller Michael J. Hsu. “As we anticipate President Biden signing the resolution, I want to reaffirm the agency’s long-standing position that predatory lending has no place in the federal banking system.”

Hsu said the agency would consider its policy options going forward that “protect consumers while expanding financial inclusion.” He said those priorities are part of the agency’s mission to ensure national banks and savings associations “provide fair access to financial services for all Americans and that customers are treated fairly.”

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.”

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.

Acting Comptroller Statement on the Vote to Overturn OCC True Lender Rule