CU Trade Groups Support Democratic Effort to Repeal OCC ‘Rent-a-Bank’ Rule

Credit union trade groups are throwing their support behind a congressional effort to rescind a Trump Administration rule they contend allows predatory online lenders to “rent” a bank to evade consumer protection laws.

The Office of the Comptroller of the Currency adopted the rule in the last administration and the Senate may soon consider a resolution that would kill it.

“In this scheme also known as ‘rent-a-bank,’ online lenders essentially rent bank charters and documentation to originate their loans in the name of the OCC-chartered banking institution, arguing that it is now a ‘bank loan’ exempt from state rate caps,” NAFCU Vice President of Legislative Affairs Brad Thaler wrote in a letter to the Senate Banking Committee late last month.

He said the online lenders are operating on an uneven playing field and are relying on the OCC’s federal preemption powers to get around consumer protection laws and rules.

In a letter to the committee, CUNA President/CEO Jim Nussle wrote that he believes the rule “looks like a blatant attempt to weaken state laws.” He said those state laws place restrictions on high interest rates and loan terms.

The lenders involved show a clear disregard of borrowers’ ability to repay their loans, Diane Standaert, senior vice president of policy and advocacy at the Hope Policy Institute, said at a news conference held by consumer groups Monday. The loans are deepening financial stress rather than alleviating it, she said.

Banking trade groups, on the other hand, support the rule.

“When banks and technology firms partner, they can efficiently and conveniently deliver services that customers demand, from a bank that customers trust to meet their financial needs,” trade groups, including the American Bankers Association and the Independent Community Bankers of America, wrote in a letter to the Senate panel.  

They said that while the rule may need some changes, it does provide clarity for determining which entity originates a loan in a bank-non-bank partnership. “That legal certainty has tangible benefits for borrowers seeking affordable credit and for market participants, which will promote economic growth,” they wrote.

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