US Congress closes Trump-era loan loophole

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The US House of Representatives joined the Senate last week to vote to overturn a federal regulation that allowed payday lenders and other low dollar and short-term lenders to bypass limits of the interest rates they could charge for loans. This is a big win for low income borrowers.

The “national banks and federal savings associations as lenders” rule was enacted in the final months of former President Donald Trump’s administration by the Office of the Comptroller of the Currency (OCC). He made a simple change in regulatory language that would have had profound consequences for millions of people in the United States by exempting lenders from regulations on interest rates for loans to the most vulnerable.

Almost a third of people in the United States don’t have enough savings to cover an unexpected cost of four hundred dollars. For them, paying for an unforeseen expense, such as car repairs or a medical emergency, requires a loan. About 12 million people take out payday loans – quickly accessible, low-value loans that rely on pledged checks dated next payday as collateral – each year, and there are more than 16,000 lending establishments on the market. salary across the country, mainly in low-income countries. marginalized neighborhoods and communities.

Unfortunately for many people who need these loans, the triple-digit interest rates that can accompany them can lead to a debt trap, where people continually refinance and refinance their loans, incurring more fees and more. debts.

Interest rate caps can help prevent this downward spiral, and rate limits are in place in more than 43 states and the District of Columbia. But the OCC rule has gutted them.

By changing the definition of what qualifies as “bank loans,” which are largely exempt from state-imposed interest rate caps, the OCC rule has resurrected “rent-a-bank” programs. , in which non-bank lenders, such as payday loans or self-financing. securities lenders, partner with a bank regulated by the OCC to circumvent interest rate limits under state laws.

In April, Human Rights Watch wrote a letter to Congress, urging both houses to use the Congressional Review Act to fill this loophole for predatory lenders and help prevent people from getting into debt they will never be able to repay. With the House vote last week, Congress did just that. The OCC rule has been repealed, but Congress and President Joe Biden’s administration have more to do to protect the rights of low-income borrowers.

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