Congress Repeals Payday Lender Regs 06/25 06:18
NEW YORK (AP) -- Congress on Thursday overturned 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 218-208 to overturn the Office of the Comptroller of the
Currency's payday lending regulations, with one Republican voting with
Thursday's vote to overturn the OCC's "true lender rules" marked the first
time Democrats in Congress successfully overturned regulations using the
Congressional Review Act.
The act was enacted in the mid-1990s and gives Congress the authority to
overrule federal agency rules and regulations with a simple majority vote in
the House and Senate. Its powers are limited to a certain period after an
agency finalizes its regulations, usually around 60 legislative days.
The Senate voted 52-47 to overturn the OCC rules on May 11. The bill now
goes to President Joe Biden, who is expected to sign it.
By overturning the Trump administration rule enacted in late 2020, Democrats
aimed to stem a payday lender practice that critics had dubbed a "rent-a-bank"
While payday lenders are regulated at the state level, the payday lender
would partner with a bank with a national banking charter when making high-cost
installment loans. Because a national bank is not based in any one state, it is
not subject to individual state usury laws.
"State interest rate limits are the simplest way to stop predatory lending,
and the OCC's rules would have completely bypassed them," said Lauren Saunders,
associate director at the National Consumer Law Center, a consumer advocacy
This isn't the first time that "rent-a-bank" has been an issue. Federal
regulators clamped down on the practice in the 1990s, but with the
proliferation of online banking and fintech companies specializing in
online-only financial services, the practice is growing once again.
An example on 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
out of Utah and Kentucky to originate those loans, Elevate is able to make
loans in Arizona for as high as 149%. In other states, Elevate makes loans with
annual interest rates as high as 299%.
In a statement, Biden's appointee to the Comptroller of the Currency said he
would "respect" Congress overturning their regulations.
"I want to reaffirm the agency's long-standing 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, overturning 15 rules and regulations enacted
in the waning days of the Obama administration.
Before Trump, the law was used only once, in 2001, when Republicans in
Congress voted to repeal a set of ergonomic regulations enacted in the final
day of the Clinton administration.
On Thursday, the House also used the act to overturn 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 overturn Trump-era
regulations that would have allowed oil and gas companies to produce more
methane when they drill.
Both the bills have passed in the Senate.