US Congress closes Trump-era loan loophole
The United States House of Representatives joined the Senate last week to vote in favor of overthrow a federal regulation that allowed payday lenders and other low-dollar, short-term lenders to bypass limits on the interest rates they could charge for loans. This is a big win for low income borrowers.
the to reign, “National Banks and Federal Savings Associations as Lenders” was enacted in the final months of former President Donald Trump’s administration by the Office of the Comptroller of the Currency (OCC). He made a simple change in regulatory language that would have had profound consequences for millions of people in the United States by exempting lenders from regulations on interest rates for loans to the most vulnerable.
Almost a third of people in the United States do not have enough savings to cover an unexpected cost of four hundred dollars. For them, paying for an unforeseen expense, such as car repairs or a medical emergency, requires a loan. About 12 millions people take out payday loans – quickly accessible, inexpensive ready which rely on pledged checks dated next payday as collateral – every year, and there are over 16,000 payday lender locations across the country, mainly in low-income neighborhoods and marginalized communities.
Unfortunately for many people who need these loans, the triple-digit interest rates that can come with them can lead to a debt trap, where people continually renew and refinance their loans, incurring more fees and more debt.
By changing the definition of what qualifies as “bank loans”, which are largely exempt from state-imposed interest rate caps, the OCC rule has been resurrected rent-a-bank programs, in which non-bank lenders, such as payday or auto lenders, partner with an OCC-regulated bank to bypass interest rate limits under state laws.
In April, Human Rights Watch wrote a letter to Congress, urging both houses to use the Congressional Review Act to fill this loophole for predatory lenders and help prevent people from getting into debt they will never be able to repay. With the House vote last week, Congress did just that. The OCC rule has been repealed, but Congress and President Joe Biden’s administration have more to do to protect the rights of low-income borrowers.