As the nation continues to deal with the fallout from the Trump presidency, the Senate has now voted to undo a Trump era financial regulation that opened doors for predatory lending practices. The Senate voted to revoke the rule under the authority of the Congressional Review Act, and according to the provisions of that law, the resolution undoing the rule also includes a ban on the implementation of any “substantially” similar rules in the future unless specifically authorized by legislators.
Three Republican Senators, including Cynthia Lummis (Wyo.), Susan Collins (Maine), and Marco Rubio (Fla.), backed the Senate’s vote to repeal. Meanwhile, the resolution undoing the Trump era financial rule now heads the House, where it’s seemingly set for approval, and on from there, the measure would require President Joe Biden’s signature.
The net effect of the original rule in question is to give consumers further opportunities to take out loans with interest rates above the maximum levels set by their home states, and this provision could obviously create serious and systematically destabilizing problems thanks to the potential spread of loans that aren’t getting paid off. The Biden administration itself has noted that the rule “undermines state consumer protection laws and would allow the proliferation of predatory lending.”
The rule worked through formally establishing which party was the “true lender” in an arrangement involving a partnership between a national bank and what in most cases is a non-bank lender. The idea was that the “true lender” would be the interest either specifically identified as such or the interest who provided the funds for the loan.
Because of established permission for banks to stick to interest rate laws in their home jurisdictions even when loaning to consumers elsewhere, non-bank lenders can work together with banks to get loans established with higher interest rates than might otherwise be available. It’s apparently somewhat of an open legal question whether non-bank lenders have to abide by state interest rate laws, but if they could merely designate a given bank as the true lender of a loan — and then take ownership of the loan once established — then potentially high interest rate loans could spread beyond what state laws aim to allow.
As Sen. Chris Van Hollen (D-Md.) put it:
‘States are taking measures to protect their constituents their consumers against these end-runs around their laws designed to prohibit these predatory practices. But last October, in the middle of the pandemic, when many working families were plunged into economic uncertainty and turmoil, the Trump administration gave these rent-a-bank schemes a free pass to exploit these loopholes.’
The Senate has already voted to undo another Trump era regulation under the Congressional Review Act. In short, the Environmental Protection Administration “adopted a rule requiring oil and gas companies to curb methane leaks and emissions from their operations,” The Washington Post explains, but the Trump administration moved to erase those guidelines. The Senate resolution was meant to revoke the Trump administration’s erasure, bringing back (eventually) the original restrictions on methane.