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Bipartisan Group of Attorneys General Seeks Repeal of Trump-Era True Lender Rule

  • A bipartisan group of 25 AGs, led by Illinois AG Kwame Raoul, sent a letter to Congress urging it to use the Congressional Review Act (“CRA”) to rescind a Trump-era True Lender Rule, which provides guidance on determining whether a national bank or federal savings association is the “true lender” on a loan in the context of a bank’s relationship with a third party.
  • As previously reported, the rule specifies that a bank is the true lender of a loan if, as of the date of origination, it is named as the lender in the loan agreement or funds the loan. The rule also specifies that in the event that one bank is named as the lender in the loan agreement while another bank funds that loan, the bank that is named as the lender is considered to be the true lender. Democratic AGs objected to the rule during the comment period, arguing that it would undermine states’ usury laws through “rent-a-bank” schemes.
  • The AGs’ letter urges Congress to repeal the rule, noting that if Congress does not use the CRA, state litigation to stop enforcement of the rule could take years, during which time predatory lenders will be able to avail themselves of rent-a-bank arrangements to circumvent state usury caps. The letter also notes that the rule would prevent courts from intervening to prevent rent-a-bank schemes if a national bank is named as the lender on loan documents or initially funds the loan.