U.S. Senate votes to repeal 'true lender' banking rule issued under Trump

FILE PHOTO: The sun sets behind the U.S. Capitol dome in Washington, U.S., on midterm election day, November 6, 2018. REUTERS/James Lawler Duggan/File Photo

WASHINGTON (Reuters) - The U.S. Senate voted on Tuesday to repeal a regulation introduced during former President Donald Trump’s administration that Democrats say allows predatory lenders to skirt state consumer protections.

Lawmakers voted 52-47 to repeal the “true lender” rule, marking the first time Democrats have rolled back a Trump-era financial rule using the Congressional Review Act, a 1996 law that gives Congress the ability to rescind recently enacted regulations.

The White House said in a statement it supported the resolution repealing the rule, which now heads to the Democratic-led House, where it is also expected to pass.

The targeted rule, written last year by the Office of the Comptroller of the Currency, attempted to clarify whether state or federal laws applied when lenders like fintechs partnered with traditional banks.

But Democrats and consumer advocates warned it would allow predatory lenders to skirt state usury laws and interest rate caps by partnering with national banks that enjoy more lax federal rules.

The OCC said when it drafted the rule that it was aiming to provide legal certainty to lenders as to whether state or federal laws applied to their business.

The regulator determined that if the bank is named as the lender in the loan agreement, then the relevant bank rules apply, meaning any partnerships with national banks would operate under federal rules, which generally are more relaxed on lending restrictions.