The House Must Be True to the Credit Needs of American Families and Entrepreneurs

As America shows its resilience and recovers from a devastating pandemic, many American families and entrepreneurs need credit to rebuild their lives and livelihoods. One would think the last thing the nation’s lawmakers would want to do is impose legal uncertainty to hamper the flow of credit to those who need it most.

Yet this is just what Congress seems poised to do. The Senate voted last month to overturn the “true lender” rule, which clarified that smaller banks could partner with outside firms to offer credit using the same legal framework under which big banks have long issued credit cards. To ensure that credit flows to deserving American families and small businesses, the House must reject similar attempts to kill the rule through a Congressional Review Act (CRA) resolution and must leave the Trump administration rule in place.

Finalized late last year by the Office of the Comptroller of the Currency, the rule makes it easier for community banks to utilize financial technology — referred to as fintech — to offer personal and small-business loans to their customers. Big banks already use this technology to offer credit cards nationwide.

Smaller banks most often lack the resources to do this but in recent years have closed the gap through partnerships with innovative fintech firms. As pointed out by a letter to House leaders from banking groups including the Independent Community Bankers of America, “when community banks . . . partner with technology firms, they can efficiently and conveniently deliver services that customers demand, from a bank that customers trust to meet their financial needs.”

Banks partnering with fintech firms is, in fact, an international trend. In the United Kingdom, for instance, the government actively encourages banks to take the “Fintech Pledge” to work with fintech firms to expand consumer credit.

But banks that partner with fintech companies to expand credit in the U.S. frequently find themselves ensnared in red tape. This is because federal courts are divided on whether to treat the loan as originating from the bank or the partnering firm.

Read the full article at National Review.