Monday, May 10, 2021


Someone somewhere is getting a loan the Democrats don’t think they should have, and it’s driving them crazy. 

At the end of the Trump administration, the Office of the Comptroller of the Currency enacted the True Lender Rule, which says that a bank is considered to be the true lender of a loan if it is named in the loan agreement or funds the loan. If one lender is listed in the loan agreement as the lender and another funds the loan, the bank named as the lender in the loan agreement actually makes the loan.

That last part is important because it means lenders other than banks — such as those that serve online markets and focus on those otherwise outside the normal banking system — can charge interest rates consistent with federal laws and the laws of the states they operate in rather than having to change practices from state to state.

It would enable banks to avoid a patchwork of state lending laws and court decisions and provide capital to be lent through other organizations without running afoul of interest-rate limits in the states where the other lending organizations operate. 

Regulators do a lot of things in the name of certainty, but this one actually affords it — and in a key area. Before the rule, the matter of who was the true lender was taken up in courts, with different results depending on jurisdiction. This rule seeks to “set national guidelines for partnerships between banks and third parties that are subject to different state interest rate limits,” wrote Sylvan Lane in The Hill.

One would think this would be one vestige of the Trump presidency the Democrats would leave in place, given it provides the certainty that can lead to increased borrowing opportunities for working class people who could need loans for car or house repairs or other matters and may not qualify for loans from traditional banks. 

But one would be wrong. Senate Democrats want this rule off the books and now. Sen. Sherrod Brown, Ohio Democrat, chairman of the Senate Banking Committee, Sen. Chris Van Hollen, Maryland Democrat, and Sen. Elizabeth Warren, Massachusetts Democrat, want to use the Congressional Review Act to get rid of the rule.  

Under the Congressional Review Act, Congress can overrule a regulation or, in this case, keep it from taking effect, with a majority vote in both houses of Congress. Ms. Warren, Mr. Brown and Mr. Van Hollen are pushing for such a vote in the Senate. Republicans are saying they will not support this with Conservatives stalwart Republicans Ted Cruz of Texas and Ron Johnson of Wisconsin joined by new firebrands Cynthia Lummis of Wyoming and Marsha Blackburn of Tennessee emerging as the tip of the spear in opposition to the progressive agenda.

Democrats have never liked lending outside of banks. They talk about high interest rates and say lenders “prey on workers and their families,” as Sen. Brown put it. That banks and consumer lenders found ways around their regulations — such as “charter renting” arrangements in which lenders “rented” bank charters to stay in compliance with laws — only infuriated them more.

Even though the regulation enacted at the end of the Trump administration directly addresses charter renting and renders it unnecessary going forward, Sen. Brown and others charge the new rule will actually encourage such arrangements. 

They thought they had snuffed out small-dollar consumer lending for good during the Obama administration. The Consumer Financial Protection Bureau, brainchild of Sen. Warren, proposed a rule in 2017 that would have effectively banned most consumer lending, but President Trump forced out Richard Cordray, the Democratic partisan who had run the agency since its founding, and gutted the rule. 

But it has survived because it must. More than 7 million American homes have no one with a bank account, and nearly half say it’s because they don’t have enough to meet minimum balance requirements. About 7 percent of Americans rely on credit that doesn’t come from banks for their loan needs.

And who are those 7 percent? Of those with only a high school education, less than 40 percent of loans were taken out from banks. For those with a college degree, that figure rises to 87.5 percent. Those with higher incomes tend to use banks more, but people of color making $80,000 per year or more used banks for their credit about 11 percent less than Whites at that income level.

Democrats can say all the way they are protecting people from their worst instincts, but Americans need these loans. These are the people they claim to champion. But as we are learning from the debates over reopening schools and removing mask mandates and other COVID-19 regulations is that the real defining principle of Democrats is not taking up for the poor, it’s controlling society. 

• Brian McNicoll, a freelance writer based in Alexandria, Va., is a former senior writer for The Heritage Foundation and former director of communications for the House Committee on Oversight and Government Reform.

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