Today, the House Financial Services Subcommittee on Consumer Protection & Financial Institutions hosted a hearing titled, “Banking Innovation or Regulatory Evasion? Exploring Trends in Financial Institution Charters.”
During today’s hearing, former Acting Comptroller of the Currency Brian Brooks was asked about the OCC rule on True Lender and the congressional resolution to repeal it using the Congressional Review Act. In his response, Brooks set the record straight on the rule (transcript below). Online Lenders Alliance (OLA) Executive Director Andrew Duke issued the following statement following the hearing:
“OLA thanks Chairman Perlmutter for holding this subcommittee hearing today and having a serious discussion on important topics related to the growing interaction between banks and fintech.
“Unfortunately there is a lot of politically-charged, misleading rhetoric surrounding the OCC’s efforts to promote bank-fintech relationships, and Brian Brooks set the record straight with the facts: low to moderate-income consumers suffer the most when banks are not able to freely originate, purchase and sell loans. The OCC’s True Lender rule clearly establishes banks’ legal and regulatory accountability for loans made in partnership with third-parties, and it actually solves the core concerns with so-called ‘rent-a-charter’ arrangements.
“OLA supports the OCC’s actions to clarify and strengthen the rules surrounding bank-third party relationships that expand credit options to all Americans – especially those of modest income.”
Brooks: There were two motivations behind the true lender rule and its companion rule, the valid when made rule. The first idea was that when the Madden decision came down from the 2nd circuit court of appeals, lending to low and moderate income people living in New York and Connecticut, the states subject to that rule, fell by 64%. Let me just say that again, when you don’t have the valid when made rule, the people who get hurt are the people are poor people and the point of the rule was to reinstate access to credit for those low and moderate income Americans – our brothers and sisters – who were cut off from credit when banks weren’t allowed to sell loans in the secondary market. That was the first reason.
The second thing we did in that rule was to make very clear that rent-a-charter schemes of the past, which were all about the idea that nobody was accountable for those loans – not the bank and not the fintech marketing partner – those were over. What we said in our rule was that under a true lender regime, if the bank was the true lender on the loan, it will be responsible for all disclosure, all anti-discrimination rules, all consumer protections. We eliminated rent-a-charter in that rule. So it’s a nice talking point to say that somehow this incentivizes rent-a-charter, but in fact the text of the rule solves rent-a-charter. And staff and career supervisors at the agency worked very hard to make sure that was the case.