The bill passed by the Trump administration was meant to clarify who bears responsibility for loans issued through arrangements between banks and non-bank lenders. Since payday lenders and other non-bank lenders charge exorbitantly high interest rates the rule said that banks could follow the interest rate limits of their home jurisdiction even when lending across state lines, but other financial firms cannot i.e. payday lending.
Now if a third party contracted with a bank, then the bank would be the party that bears responsibility. This was to ensure that regulations and rules were followed, make credit easily available, and protect the borrower. The rule was also passed because of much legal uncertainty due to lending relationships between third parties and the possibility of restrictions to affordable credit.
The rule specifies that a bank makes a loan and is the true lender if, as of the date of origination, it (1) is named as the lender in the loan agreement or (2) funds the loan. The rule also specifies that if, as of the date of origination, one bank is named as the lender in the loan agreement for a loan and another bank funds that loan, the bank that is named as the lender in the loan agreement makes the loan.
While the regulation has only been on the books since October of 2020 that is hardly enough time to see its true effects.
Former acting Comptroller Brian Brooks — a Trump appointee who issued the rule last year — and congressional supporters of the rule argued that it creates a clear standard that holds banks accountable to federal laws.
“This legal clarity fosters bank and fintech partnerships to provide their customers with the financial products they want and need,” said Rep. Patrick McHenry (N.C.), the top Republican on the House Financial Services Committee, during a Thursday floor speech.”
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