U.S. Congress closes Trump-era lending loophole

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The U.S. House of Representatives last week joined the Senate in voting for overturn a federal ordinance that allowed payday and other small and short-term lenders to bypass restrictions on the interest rates they could charge on loans. This is a big win for low-income borrowers.

IN the rule“National banks and federal savings associations as lenders” were adopted in the final months of former President Donald Trump’s rule by the Office of the Comptroller of the Currency (OCC). It made a simple amendment to the wording of regulations that would have profound implications for millions of people in the United States by freeing lenders from regulating interest rates on loans to the most vulnerable.

About third people in the US do not have enough savings to cover the unexpected expenses of four hundred dollars. They require a loan to pay for unforeseen expenses such as car repairs or emergency medical care. About 12 million people take payday loans – quickly available, small loans who rely on pledged checks dated the next payday as collateral every year, and there are more than 16,000 payday loan locations across the country that provide payday loans, mainly in low-income areas and marginalized communities.

Unfortunately for many people who needs these loans, the three-digit interest rates that may accompany them may lead to a debt trapwhere people are constantly rolling over and refinancing loans, incurring more commissions and more debt.

Maximum interest rates can help prevent this downward spiral, and speed limits in place in over 43 states and the District of Columbia. But the OCC rule gutted them.

By redefining what qualifies as “bank loans” that are largely exempt from government interest rate caps, the OCC rule revived Bank lease schemesin which non-bank lenders, such as payday lenders or auto-title lenders, work with an OCC regulated bank to circumvent interest rate restrictions under state law.

In April, Human Rights Watch wrote letter To Congress, urging both Houses to use the Reconsideration Act to close this loophole for predatory creditors and help prevent people from falling into debt they can never pay back. Congress did just that with the House vote last week. The OCC rule has been repealed, but both Congress and Joe Biden’s administration more needs to be done to protect the rights of low-income borrowers.

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