Banking regulator lobbying for Trump-era rule angered Democrats

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A working federal official overseeing one of Washington’s most powerful banking regulators tacitly campaigns in Congress to uphold a Trump-era rule that critics call predatory, triggering a vehement reprimand from the Democratic chairman of the Senate Banking Committee.

The unusual dispute between a federal agency and a high-ranking legislature is about the future of a regulation finalized in October by the Office of the Comptroller of the Currency, which is responsible for overseeing many of the country’s largest banks.

The rule relaxed the limits on loans that banks give in partnership with other businesses such as online lenders. Consumer advocates have warned it could trigger predatory loans by allowing “payday” lenders to bypass government interest caps.

Senate Democrats, led by Banking Committee Chairman Sherrod Brown of Ohio and Senator Chris Van Hollen of Maryland, have sought support for a vote on a bill that would repeal the rule. But on a rare move, Blake Paulson, the acting head of the Office of the Comptroller of the Currency – President Joe Biden has not nominated his own election to run the agency – wrote to Brown and other lawmakers last week to argue against repealing the regulation. Paulson warned of possible “adverse effects” and “misperceptions” related to the rule.

Brown is now putting down the agency’s attempted intervention.

“It is outrageous that the current acting auditor is campaigning for this harmful rule,” said Brown’s spokeswoman Alysa James. “His letter to Congress is highly irregular, inappropriate and contains misleading statements.”

The clash underscores longstanding tension between the Wall Street watchdogs and the agency, previously accused of being intimate with financial firms they oversee. The conflict escalates in part because Biden hasn’t named an official to run the agency amid one Political struggle among democrats about potential nominees.

The so-called “True Lender” rule was one of the most controversial moves by the OCC in the waning days of the Trump administration, when the agency was led by Brian Brooks, a former bank colleague of then Treasury Secretary Steven Mnuchin.

The rule addresses a situation where a third party company facilitates a loan in partnership with a bank. The regulation states that the bank is the “true lender” and retains the associated legal obligations if it is named in the loan agreement as the lender or if it finances the loan. The OCC has said it is trying to remove legal uncertainty about which company counts as the lender and what laws apply.

However, critics – including state officials – fear that it will allow predatory lenders to bypass state-to-state interest rate caps by partnering with a bank.

Without a Biden agent to change course, a group of Democrats in the Senate and House of Representatives want to use the powers under the Congressional Review Act to repeal the rule. The law gives Congress the power to repeal executive regulations. Within a limited time window, the Senate enables an accelerated procedure with a filibuster-free majority vote.

It was unclear whether the Democrats have the votes to overturn the rule. Some financial industry lobbyists were cautiously optimistic that the ordinance would not be overturned by Congress.

Amid the uncertainty, Paulson – who has been with the agency since 1986 – wrote to senior members of the House and Senate of both parties on April 14 to prevent them from abolishing the rule.

In the letter received from POLITICO, Paulson defended the content of the regulation, arguing that it “facilitates the OCC’s oversight of this core banking activity”. He also said disapproval of the rule would have “a potentially unintended consequence” of limiting the agency’s ability to address the credit partnerships in the future.

“[C]Changes to the rule, if any, should be made as part of the agency’s rulemaking process and in accordance with the Administrative Procedure Act, “he said.

Brown, who has authority over the agency as chairman of the banking committee, denies the OCC’s defense of the rule, including claims that it maintains state authority to regulate non-bank lenders and supports the availability of “responsible” credit. Braun plans a hearing next Wednesday with so-called Rent-a-Bank systems.

In this week, 25 attorneys general urged Congress leaders to repeal the rule, arguing that it would “sanction costly loan programs designed to circumvent state usury laws.”

“This rule deprives states of the ability to hold these unscrupulous lenders accountable,” said Van Hollen spokeswoman Francesca Amodeo. “We are determined to work together in Congress – and with the Senate-approved leadership of President Biden in the OCC – to protect the rights of ordinary Americans and to abolish this rule.”

OCC spokesman Bryan Hubbard said the agency sent the letters to Hill’s leaders “so that they can weigh up their actions in relation to the Congressional Review Act resolutions introduced to repeal the rule.”

“The OCC routinely provides letters, briefings and other information explaining the agency’s position on rules and regulatory action, both in response to requests from Congress and proactively to dispel misjudgments about agency actions,” said he.

Republicans on the banking committee supported the agency’s actions on Thursday after the dispute with the Democrats went public.

“We definitely welcome a respectful and thoughtful discussion of a very tenable rule at next week’s hearing,” said Amanda Thompson, a spokeswoman for the panel’s GOP members.

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