Providing for Congressional Disapproval Under Chapter 8 of Title United States Code, of the Rule Submitted By the Office of the Comptroller of Currency Relating to ``National Banks and Federal Savings Associations As Lenders''

Floor Speech

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Mrs. LUMMIS. Mr. President, when I joined the Senate Banking Committee last February, I pledged to fairly examine every issue that came before us, with an eye for detail and a fresh perspective-- promoting innovation, free markets, and our dual banking system.

I support the policy goals of the true lender rule in promoting access to credit for underserved communities. I also recognize how vital it is to provide legal clarity to financial technology innovators during this time of change. I support all banks' powers, both State and national, to export interest rates across State lines and to make unassigned loans with clear regulatory certainty. Again, this promotes access to credit.

The issues raised by the Office of the Comptroller of the Currency's true lender rule and S.J. Res. 15, however, are not limited to ensuring access to credit or protecting consumers from predatory lending and have much larger implications for our banking system.

State-chartered banks have existed since the founding of our Republic. After the passage of the National Bank Act of 1864, our country fostered a dual banking system, and our country is all the stronger for it. The United States is the leader of the global financial system because we have a banking system that is based on competitive equality, flexibility, and innovation.

Under the Federal laws that protect our dual banking system, State and nationally chartered depository institutions have nearly identical powers to carry out the business of banking across State lines with legal clarity. This is because of State parity and the so-called State wild card laws, the Riegle-Neal Act, and subsequent amendments over the years. The Federal Reserve and the FDIC have broadly supported these policies as well, adopting rules that promote equality for State banks vis-a-vis national banks.

Esther George, President of the Kansas City Fed, noted in a 2012 speech that ``the dual banking system has provided and continues to offer significant benefits to our financial system and economy . . . multiple options for state and federal charters have led to considerable innovation and improvement in banking services.''

So Congress and our Federal bank supervisors, on a roundly bipartisan basis, have always been committed to maintaining parity between State and nationally chartered institutions.

This brings us to today's vote. The problem with the true lender rule before us is that it has the potential to upend parity between State and national banks. In a nutshell, the OCC true lender rule determines which banks or other financial institutions actually make a consumer loan. Many States have different legal standards for determining this. Ultimately, this would allow national banks to make and assign loans more easily than State-chartered banks, giving them a distinct advantage in the lending business.

The Board of Governors of the Federal Reserve and the Federal Deposit Insurance Corporation did not adopt companions to the OCC true lender rule. It is likely those Agencies do not have the legal authority to adopt a similar rule for State banks. The FDIC confirmed this during public remarks in December 2020. Consequently, we are left with a scenario where national banks and Federal savings associations have a great deal of legal clarity about marketplace lending and State- chartered banks do not.

Why does this matter? There are approximately 3,954 State-chartered banks in our country as of December. There are approximately 1,062 national banks and Federal savings associations that are depository institutions. That means that of the approximately 5,016 commercial banks in our dual banking system, about 79 percent are State banks and 21 percent are national banks and Federal savings institutions. The OCC true lender rule applies to only 21 percent of the banks in our country. Does a rule that applies to only 21 percent of the banks really promote parity between State and nationally chartered institutions? This chart shows plain as day that it does not.

Moreover, State-chartered banks are the primary banks currently engaged in the kind of marketplace lending envisioned by the OCC true lender rule. Many State banks have innovative and thriving partnerships with nonbank lenders today. The OCC true lender rule will cause those partnerships to shift to national banks. Why would a nonbank lender choose to partner with a State bank that lacks the legal clarity of a national bank or savings association and the preemption that follows Federal law? I do not believe they will. There would be a great deal of legal uncertainty for them because of State consumer protection laws. Many of the State bank partnerships we see today in the marketplace lending arena may disappear as the nonbank lenders naturally gravitate towards the greater legal clarity of national banks.

This rule, in effect, would make these innovative partnerships the domain of national banks, rendering State-chartered banks to be more like second-class institutions. That has not been the will of Congress in the past, and I don't believe it is today.

A prominent law firm noted in January of this year that ``for institutions that participate in marketplace lending, most of which are state-chartered banks, the lack of an FDIC rule creates a significant exception to the federal support for the marketplace lending model and appears to largely leave the issue to the states.''

Many wonder why States cannot adopt their own true lender rules on a State-by-State basis or adopt some kind of uniform law. This likely will not work for a number of reasons.

First, were a State like Wyoming to adopt its own true lender rule for its own banks, what would require another State to respect the Wyoming true lender rule and set aside its own consumer protection laws that conflict with the Wyoming law? It likely would not, and that State would likely require a Wyoming bank without a branch in that State to abide by its own consumer protection laws in doing business there. This is a basic tenet of States maintaining sovereignty within their own borders, limited only by the U.S. Constitution and Federal law.

Secondly, a uniform law adopted at the State level would likely take 3 to 5 years, and by that time, marketplace lending would firmly be the province of nationally chartered institutions. There would then be no need for the law.

So where does that leave our dual banking system? The OCC true lender rule clarifies a thorny legal question and restricts the application of State consumer protection laws, providing legal clarity in marketplace lending to 21 percent of the banks in this country, while essentially telling the other 79 percent that they should convert to a national charter or risk being left behind. That is the kind of choice Congress has rejected in the past.

Many question the value of using the Congressional Review Act against the true lender rule since it will prevent the OCC from adopting a similar rule in the future. However, again, both the FDIC and the Federal Reserve likely do not have the requisite statutory authority to adopt their own true lender rule anyway. As a result, there is no rule or Agency-based solution that fixes this problem in a satisfactory way.

For the true lender rule to apply equally to all State and national banks, Congress must act. Leaving the OCC true lender rule in place would reduce the likelihood of Congress fixing the issue. Disapproving this rule will ensure that this issue remains top-of-mind for many and can be fixed in a lasting way that ensures a level playing field. This is a classic example of an issue crying out for a uniform national standard enacted by Congress, which applies to all banks.

The United States is the leader of the global financial system for many reasons, but one of those is surely the innovation, competition, and diversity of thought brought about by our dual banking system. This is a privilege, not a right, however, and one must work hard to maintain that for future generations.

I am proud to be a vocal advocate of financial innovation in this Chamber, and I will continue to work hard towards modernizing our financial system in a responsible manner. However, for innovation to be truly lasting, it has to be built on a solid foundation and not pick winners and losers between national banks and State banks.

Only Congress can truly fix this issue. I look forward to working with my colleagues to accomplish this. In the coming days, I will be introducing legislation to do just that. Until this is fixed, the current ``valid when made'' rule will continue to provide legal clarity to Federal and State banks.

I urge my colleagues to thoughtfully consider the potential impact of the OCC true lender rule on State-chartered banks.

In order to preserve our dual banking system and Congress's past actions to ensure parity between State and nationally chartered banks, I do not have any other option but to support S.J. Res.

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