Focus on Fintech: Congress repeals the OCC’s “real lender” rule


On June 24, the United States House of Representatives passed a resolution to overturn the so-called “real lender” rule issued by the Office of the Comptroller of the Currency, following the Senate’s passage of a Identical resolution on May 11. The rule clarified that a national bank in a lending partnership with a non-bank organization would be considered the “real” lender for program loans if it (1) was named as the lender in the loan documents. ; or (2) financed the loan.

The reason given by the OCC for issuing the rule was to remove regulatory uncertainty caused by inconsistent approaches to the real issue of lenders among reviewing tribunals and regulators. The “real lender” rule is particularly relevant for the market lending model, which relies on the banking partner being the designated lender to avoid state license requirements and interest rate caps.

Congress repealed the “true lender” rule under the Congressional Review Act (CRA). Under the CRA, Congress has a limited amount of time after a federal agency issues a rule to pass a joint disapproval resolution using “quick” parliamentary procedures that prevent Senate filibustering. If both houses pass the resolution, it is presented to the president for signature or veto.

President Biden signed the joint resolution on June 30, when the OCC rule was revoked retroactively from its effective date of December 29, 2020. Due to the rule being repealed in Under the CRA, the OCC is precluded from issuing a rule “in substantially the same form” without new enabling legislation.

Congress’ overturning of the OCC’s “real lender” rule appears to be a victory for state regulators in their broader competition with federal agencies for the power to regulate non-bank fintech companies. However, it is not clear that it will have a significant impact on banks and their lending partners. The rule was only in effect for about six months, so it likely was not a factor in the design of a significant number of programs. The market would have benefited from a clear line test, but in the absence of further action from federal regulators or Congress to challenge the market’s lending model, we expect it to continue to work. in the status quo.

More importantly, the “real lender” rule is just one of two OCC rules aimed at providing greater regulatory certainty to market lenders. The first, the so-called “Madden fix” rule published on June 2, 2020, targeted the 2015 decision of the United States Court of Appeals for the second circuit in Madden v. Midland Funding LLC. In that case, the court ruled that a non-bank assignee of consumer loans issued by a national bank was not entitled to invoke the bank’s pre-emptive privilege, which meant that the loans at issue were suddenly subject to national consumer financial protection laws when ceded to a non-bank.

The OCC Madden-fix rule restored the common law principle that an interest rate valid at the time of origin cannot be made illegal by a subsequent transfer. The “Madden fix” rule is not affected by Congress’ overturning of the true lender rule, and arguably confers a greater advantage on market lenders: the ability to freely transfer loans to investors or investors. to other banks.

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