OLA Reacts to Senate Banking Hearing

Today, the Senate Banking Committee hosted a hearing titled, “The Reemergence of Rent-a-Bank?” Online Lenders Alliance (OLA) Executive Director Andrew Duke issued the following statement after the hearing:

“The Online Lenders Alliance believes that all borrowers—including those with modest income and lower credit scores—should have more options for credit access and financial services.  The True Lender rule helps expand access to affordable credit and promote financial inclusion. I commend Brian Brooks for his thoughtful and methodical presentation of the facts surrounding the OCC’s True Lender rule at today’s Senate hearing.  Unfortunately, this hearing also served as a platform for others to repeat politically charged attacks that ignore the facts surrounding the rule.”

Some of these claims and responses to them are below.

Claim: The OCC True Lender Rule is a “Rent-A-Charter” scheme

  • The OCC’s True Lender Rule addresses “Rent-A-Charter concept: “The OCC’s longstanding and unwavering opposition to predatory lending, including but not limited to predatory lending as part of a third-party relationship, remains intact and strong. In fact, this rulemaking would solve the rent-a-charter issues raised and ensure that banks do not participate in those arrangements. As noted in the proposal, the OCC’s statutes and regulations, enforceable guidelines, guidance, and enforcement authority provide robust and effective safeguards against predatory lending when a bank exercises its lending authority. This rule does not alter this framework but rather reinforces its importance by clarifying that it applies to every loan a bank makes and by providing a simple test to identify precisely when a bank has made a loan. If a bank fails to satisfy its compliance obligations, the OCC will not hesitate to use its enforcement authority consistent with its longstanding policy and practice.”

Claim: The True Lender Rule exports interest rates

  • In the OCC’s documents the true lender rule does not change banks’ authority to export interest rates. That authority is granted by federal statute.  According to an OCC Factsheet released in 2021, “National banks and federal savings associations have the same authority that state banks have regarding exportation of interest rates. Both federal- and state-chartered banks must conform to applicable interest rate limits. States retain the authority to set interest rates and those vary from state to state.”
  • Furthermore, the OCC said, “this rulemaking does not assert authority over nonbank lenders or interpret state law…if a nonbank partner is the true lender, the relevant state (and not the OCC) would regulate the lending activity, and the OCC would assess the bank’s third-party risk management in connection with the relationship itself.”

Claim:  Consumers will benefit if these loans are prohibited

  • In a study 2017 study by Colleen Honigsberg; Robert J. Jackson, Jr.; Richard Squire examined how the legal enforceability of debt contracts affects consumer lending.  In the wake of the Madden decision (a court ruling that challenged transfer of the interest rate originated by a bank to a non-bank purchaser), the study found, lending to low to moderate income consumers fell by 67%.  
  • An amicus brief filed by a non-partisan group of 47 leading scholars of banking filed in support of the OCC’s True Lender rule said the expansion of lending and lowering of risk made possible by loan sales should lead to more financial inclusion and broader access to credit. Studies have shown that loan sales reduce the interest rates that borrowers pay on their loans and increase the likelihood that borrowers will receive a loan. These advantages should, in theory, be especially important for small and risky borrowers, who are often excluded from receiving loans when credit is constrained. Such financial inclusion has been highlighted as important for economic growth and a more equal distribution of wealth and income.

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