On May 11, 2021, in a 52-47 vote, the United States Senate passed a Congressional Review Act resolution to revoke the Office of the Comptroller of the Currency’s (OCC) True Lender Rule. The Congressional Review Act, passed in 1996, permits Congress to pass a joint resolution of disapproval that, with the President’s signature, can repeal a recent rule issued by a federal agency and prohibits the federal agency from promulgating a similar rule. 5 U.S.C. § 801(b)(2), 802(a).
As LenderLaw Watch previously reported, the OCC issued its final rule on the True Lender doctrine to address the question of which entity makes a loan when the “loan is originated as part of a lending partnership involving a bank and a third party.” The True Lender Rule established that a national bank is the “true lender” of loan when, as of the date of origination, (1) the bank is named as the lender to the loan agreement or (2) that bank funds the loan.
Challengers to the True Lender Rule contend that the Rule improperly encourages predatory lending by permitting lenders to circumvent state interest-rate caps. For example, in January 2021, Attorneys General from seven states and the District of Columbia filed suit against the OCC contending the Rule “halt[ed] the ability of the States” to deter predatory lending practices with state usury and usury-evasion laws. Supporters of the True Lender Rule urge that the Rule brought much needed legal certainty to the consumer finance industry and expands consumers’ access to affordable credit.
This resolution will now head to the Democratic-led House of Representatives where it is likely to pass. President Biden is also expected to sign, as the White House issued a statement of support for the resolution ahead of the Senate vote. If passed, this resolution will have a significant impact on the consumer finance industry and banks will need to be cautious when entering into partnerships with third parties.