The U.S. Senate voted largely along party lines on Tuesday to repeal a Trump-era rule that made it easier for predatory payday lenders to dodge state-level interest rate limits and to trap vulnerable and low-income people in debt.
By a vote of 52-47 – with the senses. Cynthia Lummis (R-Wyo.), Susan Collins (R-Maine) and Marco Rubio (R-Fla.) Crossing the aisle in a show of support — the Senate passed a Congressional Review Act (CRA) resolution that would nullify the Trump administration’s change, which financial industry watchdogs and consumer advocacy groups have called the “fake lender” rule.
A complementary CRA resolution has been introduced in the House of Representatives, which has until the end of the legislative session to pass it.
Stressing the urgency of House action, Lauren Saunders of the National Consumer Law Center said the Trump-era rule is “actively hurting people right now, championing a predatory business model that is destroying small businesses, homes and lives”.
To cite just one glaring example, defenders have underline the case of a New York restaurant owner who took out $67,000 in small business loans from World Business Lenders and is now facing an annual interest rate of 268% – well above the maximum 25% allowed by New York criminal usury law.
The Payday Loan Debt Trap Tracker estimates that weak regulation of payday lenders has cost consumers more than $11 billion in fees since 2019.
“Congress must act,” Saunders said, “because it could easily be two years or more before the rule can be repealed through rulemaking, and small businesses and families devastated by Covid, in particular in black and brown communities, can’t wait.
One of the latest acts from Trump’s Office of the Comptroller of the Currency (OCC), the rule allows financial entities such as payday lenders to lease a bank’s name and charter in order to evade the laws of the state prohibiting non-banking institutions from charging exorbitant interest rates – a program known as “rent-a-bank”.
“Payday lenders bring in customers willing to borrow money at high rates, then sign an agreement with a bank that will distribute the loan money to those borrowers,” said Hannah Levintova of Mother Jones Explain. “The loan documents mention the bank as the originator of the loan. Once this paperwork is completed, the bank resells most of the loan to the high-cost lender (or an affiliate). The result, then, is that the payday lender posed as a bank in an effort to charge borrowers more money.
Rachel Gittleman, head of financial services outreach at the Consumer Federation of America, said in a statement Tuesday that the Senate vote “shows bipartisan disapproval of the harmful bank leasing model used by predatory payday and installment lenders.” to make triple-digit interest rate loans that are illegal nationwide.
“Now,” Gittleman added, “the United States House of Representatives must act to protect consumers, especially small business owners, still reeling from the fallout from the Covid-19 pandemic.”