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On June 24, the U.S. House of Representatives passed S.J. Res. 15 by a vote of 218-208 to repeal the Office of the Comptroller of the Currency's (OCC) "True Lender" rule under the Congressional Review Act (CRA). The OCC published the rule last year to establish a "simple, bright-line test" to determine when a national bank or federal savings association is the true lender. Under the rule, a bank is the true lender and makes a loan if, as of the date of origination, it (i) is named as the lender in the loan agreement or (ii) funds the loan. Further, the final rule amended the initial proposed rule and added that if, as of the date of origination, one bank is named as the lender in the loan agreement and another bank funds that loan, the bank that is named as the lender in the loan agreement is deemed to have made the loan. The U.S. Senate passed S.J. Res. 15 last month by vote of 52-47 to invoke the CRA and provide for congressional disapproval and invalidation of the final rule. The repeal now heads to President Biden who is expected to sign it.
Putting it into Practice: Congress' decision to overturn the rule stems from the criticism by consumer advocates and others that the rule would lead to allegedly unfair "rent-a-bank" schemes, as well as predatory and usurious lending tactics. For FinTechs and other non-bank lending companies, repeal means continued uncertainty concerning which state laws apply to a lending program developed in coordination with a partner bank. As a result, both banks and non-banks in lending partnerships will likely continue for the foreseeable future to be subject to a patchwork of state law requirements, compliance measures, and other regulations, including state usury caps. Notwithstanding the repeal, bank partnerships remain a popular structure for well-established and new FinTechs, covering a wide range of credit, banking, and payment services that consumers have increasingly gravitated to in lieu of traditional brick-and-mortar offerings.
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