UPDATE 1-U.S. House targets 'predatory lenders', votes to repeal Trump banking rule

(New throughout, adds details and comments)

By Katanga Johnson

WASHINGTON, June 24 (Reuters) - The U.S. House of Representatives voted Thursday to repeal a contentious banking rule introduced during former President Donald Trump's administration that Democrats say allows predatory lenders to skirt state consumer protections.

Lawmakers voted 218 to 208 to roll back the so-called "true lender" rule, which attempted to clarify what laws applied to lenders like fintechs when partnered with traditional banks, and clears the way for its removal as President Joe Biden is expected to sign it.

"Predatory lenders trap working class communities like mine in cycles of debt, and the Trump administration's so-called 'True Lender' rule helps them get around state consumer protection laws to do it," said Illinois Congressman Jesús "Chuy" García, who introduced the CRA legislation.

"Repealing this rule empowers states to protect their residents from debts they can't repay and recognizes the will of people across the country who have voted to support these protections."

The targeted rule, written last year by the Office of the Comptroller of the Currency, attempted to clarify whether state or federal laws applied when lenders like fintechs partnered with traditional banks.

Democrats and consumer advocates warned it would allow predatory lenders to skirt state usury laws and interest rate caps by partnering with national banks that enjoy more lax federal rules.

The OCC said when it drafted the rule that it was aiming to provide legal certainty to lenders as to whether state or federal laws applied to their business.

The regulator determined that if the bank is named as the lender in the loan agreement, then the relevant bank rules apply, meaning any partnerships with national banks would operate under federal rules, which generally are more relaxed on lending restrictions.

Acting Comptroller of the Currency Michael Hsu said he "reaffirms the agency's long-standing position that predatory lending has no place in the federal banking system." (Reporting by Pete Schroeder; Editing by David Gregorio)