Congress overturns Trump-era regulations on payday lenders

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NEW YORK (AP) – Congress on Thursday repealed a number of regulations enacted in the final days of the Trump administration that effectively allowed payday lenders to avoid state laws capping interest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 of Representatives voted 218 votes to 208 to repeal the Office of Auditor’s payday lending rules, with one Republican voting with the Democrats.

Thursday’s vote to repeal the OCC’s “true lender rules” was the first time Democrats in Congress successfully repealed the Congressional Review Act.

The law was passed in the mid-1990s and gives Congress the power to repeal the rules and regulations of federal agencies by simple majority in the House and Senate. Its powers are limited to a period of time after an agency has finalized its ordinances, typically around 60 legislative days.

The Senate voted 52 to 47 on May 11 to repeal the OCC rules. The bill now goes to President Joe Biden, who is expected to sign it.

By repealing the Trump administration rule, enacted in late 2020, the Democrats wanted to curb a practice by payday lenders that critics had termed the “rent-a-bank” system.

While payday lenders are regulated at the state level, the payday lender would work with a bank with a national banking charter to provide expensive installment loans. Since a national bank is not resident in a state, it is not subject to national usury laws.

“Government interest rate caps are the easiest way to stop predatory loans, and the rules of the OCC would have bypassed them completely,” said Lauren Saunders, assistant director of the National Consumer Law Center, a consumer advocacy group.

This is not the first time that “Rent-a-Bank” has been an issue. Federal regulators took action against this practice in the 1990s, but with the proliferation of online banking and fintech firms that specialize in purely online financial services, the practice is picking up again.

An example of how the practice works can be seen at Elevate, a Texas-based fintech company that offers expensive installment loans like a payday loan. Elevate offers credit in several states, including Arizona, which has state law that limits the interest rates on payday loans to 36%. Because Elevate uses Utah and Kentucky banks to provide these loans, Elevate Arizona can lend up to 149%. In other states, Elevate offers loans with annual interest rates of up to 299%.

In a statement, Biden’s appointment as auditor said he would “respect” Congress if it repeals its regulations.

“I would like to reaffirm the agency’s longstanding position that predatory lending has no place in the federal banking system,” acting currency auditor Michael J. Hsu said in a statement.

While Thursday’s vote was a first for the Democrats, former President Donald Trump and a Republican-controlled Congress took advantage of the Congressional Review Act when they came to power in 2017, repealing 15 rules and regulations from the last Days of the Obama administration were enacted.

Before Trump, the law was applied only once, in 2001, when Republicans in Congress voted to repeal a number of ergonomic regulations passed on the last day of the Clinton administration.

On Thursday, the House of Representatives also used the bill to repeal a number of regulations approved by the Trump Equal Opportunities Commission on issues of discrimination in the workplace. The vote was 219-210.

On Friday, the House of Representatives is expected to use it again to overturn Trump-era regulations that would have allowed oil and gas companies to produce more methane while drilling.

Both bills were passed in the Senate.



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