Weekly Wrap: Lawmakers Argue Over OCC Rule Validating Loan Sales to Non-Banks
WASHINGTON – Democratic senators have made clear their hopes to block a rule that would make it easier for national banks to sell loans to third parties, but overturning the measure in the tightly divided Senate could be an uphill battle.
The issue is the ability of banks to partner with non-banks in lending operations while benefiting from interest rate flexibility. Under the Office of the Comptroller regulation finalized in October, a national bank is considered the “true lender” if it is designated as such in a loan agreement or if it finances the loan.
Banks say the rule is necessary to ensure legal clarity when engaging in interstate loan sales. The “real lender” rule followed an earlier OCC measure saying that when a national bank makes a loan in accordance with the laws applicable at the time, it will comply when sold elsewhere.
But consumer advocates and many Democratic lawmakers say the rules allow non-banks to engage in “bank rental” schemes to evade state usury laws and overburden customers.
“As we’ve heard, this new so-called ‘real lender’ rule really opens the floodgates for rental banks and predatory lending,” Sen. Chris Van Hollen, D-Md., Told the Senate. Hearing of the banking commission on Wednesday.
Van Hollen introduced a resolution last month – accompanied by a resolution in the House – that would overturn the true lender rule under the Congressional Review Act. The law allows Congress to overturn regulations by simple majority, with the support of the president, if lawmakers act within 60 legislative days of the rule’s publication.
“I hope Congress will muster the votes to overturn it,” Van Hollen said.
But it is not known if the Democrats have the votes. Republicans largely oppose the measure, and in general, the Democratic majority in the Senate relies on a decisive vote from Vice President Kamala Harris. This means that if only one member of the Democratic caucus votes against the resolution, it will be more difficult to pass it.