ABA, Financial Trade Associations Oppose Repeal of OCC’s ‘True Lender’ Rule

The American Bankers Association and a group of financial trade associations today opposed the use of the Congressional Review Act to repeal the OCC’s rule that established a test to determine when a bank is considered the “true lender” of a loan made in a partnership with a nonbank entity. Under the Congressional Review Act, Congress may overturn with a simple majority vote rules finalized within the previous 60 days Congress is in session. A resolution using this procedure also prohibits the agency in question from reissuing a substantially similar rule.

The groups said in a joint letter to congressional leaders that the “true lender” rule could be strengthened, but that “we are concerned that using a CRA resolution of disapproval would create significant legal impediments to revisiting the rule and would reduce access to affordable credit, harming consumers and the communities in which they live.”

They added that the rule provides clarity for determining which entity originates a loan in a bank-nonbank partnership and said “that legal certainty has tangible benefits for borrowers seeking affordable credit and for market participants, which will promote economic growth.”

In the absence of a binding agency rule, the groups noted that courts had applied different standards for determining which entity is the true lender of the loan, and that “this uncertainty discouraged lending and impaired the ability of banks to securitize or sell their loans, which reduced liquidity and stifled banks’ efforts to increase lending in their communities.”