On Wednesday, April 28, the Senate Banking Committee will hold a hearing, “The Reemergence of Rent-a-Bank?

In addition to Brian Brooks, the former Acting Comptroller of the Currency, the scheduled witnesses are Josh Stein, North Carolina Attorney General, Lisa Stifler, Director of State Policy, Center for Responsible Lending, Dr. Frederick D. Haynes, III, Senior Pastor, Friendship-West Baptist Church, Dallas, Texas, and Dr. Charles Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia Business School.  Dr. Calomiris previously served as OCC Senior Deputy Comptroller for Economics under Mr. Brooks.

The topics discussed at the hearing are expected to include the resolution that has been introduced under the Congressional Review Act (CRA) to overturn the OCC’s “true lender” final rule (Rule).  The Rule addresses when a national bank or federal savings association should be considered the “true lender” in the context of a partnership with a third party.

A group of state Attorneys General that includes Josh Stein, the North Carolina AG who is a scheduled witness, recently sent a letter to Senate and House members expressing their “strong objections” to the Rule.  The AGs assert that the Rule would sanction the use of “rent-a-bank” schemes and call upon lawmakers to override the Rule under the CRA.

Blake Paulson, the Acting Comptroller of the Currency, recently sent a letter to Senators Brown and Toomey “to make them aware of the rule’s intended effect and the adverse impact of overturning the rule.”  In the letter, he discusses the Rule’s role in expanding access to affordable credit products from mainstream financial services providers and the OCC’s intention to use its supervisory and enforcement authorities if a bank making loans in partnership with a third party fails to meet its compliance obligations.  Mr. Paulson also warns that disapproval of the Rule under the CRA “will constrain future Comptrollers’ ability to address the true lender issue and may limit the OCC’s ability to take supervisory and enforcement action against banks that would have been deemed to have ‘made’ the loan under the true lender rule.”   Mr. Paulson asserts that because of this “unintended consequence” of a CRA override, instead of using the CRA, any changes to the Rule should be made through the OCC’s rulemaking process and in accordance with the Administrative Procedure Act.

According to a Politico report, a spokesperson for Senator Brown called Mr. Paulson’s letter “highly irregular” and “inappropriate.”  In our view, the comments attributed to Senator Brown’s spokesperson are off base.  We can’t think of anyone more qualified than the Acting Comptroller (who  held a senior position at the OCC for many years and was involved in the rulemaking process) to advocate for the Rule.