Congress rolls back Trump-era regulations on payday lenders
NEW YORK — Congress on Thursday reversed a set of regulations enacted in the final days of the Trump administration that effectively allowed payday lenders to avoid state laws capping interest rates.
The House voted 218 to 208 to strike down payday loan regulations from the Office of the Comptroller of the Currency, a Republican voting with Democrats.
Thursday’s vote to overturn the OCC’s “true lender rules” marked the first time Democrats in Congress successfully overturned the regulations using the Congressional Review Act.
The law was signed into law in the mid-1990s and gives Congress the power to overrule federal agency rules and regulations by simple majority vote in the House and Senate. Its powers are limited to a certain period after an agency finalizes its regulations, usually about 60 legislative days.
The Senate voted 52 to 47 to strike down the OCC rules on May 11. The bill now goes to President Joe Biden, who is expected to sign it.
By rolling back the Trump administration’s rule enacted in late 2020, Democrats aimed to stem a payday lender practice that critics had dubbed a “rent-a-bank” program.
While payday lenders are regulated at the state level, the payday lender would partner with a bank with a national banking charter when providing high cost installment loans. Because a national bank is not based in a single state, it is not subject to the usury laws of each state.
“State interest rate limits are the easiest way to stop predatory lending, and OCC rules would have completely circumvented them,” said Lauren Saunders, associate director at the National Consumer Law Center. , a consumer advocacy group.
This isn’t the first time “rent-a-bank” has been a problem. Federal regulators cracked down on the practice in the 1990s, but with the proliferation of online banks and fintech companies specializing in online-only financial services, the practice is growing again.
An example of how the practice works can be seen in Elevate, a Texas-based fintech company that offers high-cost installment loans like a payday loan. Elevate offers loans in several states, including Arizona, which has a state law capping interest rates on payday loans at 36%. Because Elevate uses banks in Utah and Kentucky to issue these loans, Elevate is able to provide loans in Arizona for up to 149%. In other states, Elevate provides loans with annual interest rates of up to 299%.
In a statement, Biden’s appointee to the Comptroller of the Currency said he would “respect” Congress by rolling back their regulations.
“I want to reaffirm the agency’s longstanding position that predatory lending has no place in the federal banking system,” Acting Comptroller of the Currency Michael J. Hsu said in a statement.
While Thursday’s vote marked a first for Democrats, former President Donald Trump and a Republican-controlled Congress used the Congressional Review Act when they came to power in 2017, rolling back 15 rules and regulations enacted in the final days of the Obama administration.
Before Trump, the law has only been used once, in 2001, when congressional Republicans voted to repeal a set of ergonomic regulations enacted on the last day of the Clinton administration.
On Thursday, the House also used the law to strike down a set of regulations approved by the Equal Employment Opportunity Commission under Trump regarding employment discrimination issues. The vote was 219-210.
On Friday, the House is expected to use it again to roll back Trump-era regulations that would have allowed oil and gas companies to produce more methane when they drill.
Both bills were passed in the Senate.