OCC’s new choice extinguishes the last dying embers of the “real lender” rule

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From the American Bankers Association to credit market investors, Wall Street is “panicking” over the appointment of Willow Omarova as comptroller in the Office of the Comptroller of the Currency (OCC).

And for good reason: virulent criticism of both digital currencies and the big banks, it will, among other things, extinguish any hope of a return to the “real lender” rule, or even the “valid once done” doctrine.

Omarova is a prominent figure in the capital markets, having built an impressive career as a professor at Cornell Law School and as a banking lawyer and treasury official. However, many are concerned about his refined take on academia on systemic changes in the banking industry.

Omarova also has a long history of criticizing financial innovation, be it in cryptocurrencies or other fintechs. She tends to think that the risks of reckless growth and market disruption outweigh the benefits, at least for the consumer.

In securitization, his appointment means the sun is finally setting on the “real lender” rule, a provision that allows non-bank lenders in the market to create loans by partnering with banks. Created in October 2020 under the leadership of Controller Brian Brooks, a big supporter of fintech, the law has clarified the regulations and reduced the compliance burden for innovative companies.

Much to the dismay of market lenders, the rule was repealed soon after, under the Congressional Review Act of May. The law prohibited the OCC from reissuing any rule that would be “substantially the same form”.

Despite this, market players had quietly hoped – and even waited – for a new version of the “real lender” rule to eventually make a comeback.

But Omarova’s appointment puts that hope aside. Rather, it adds momentum in the opposite direction – towards increased state regulation of online lenders and their banking partners.

The result is more uncertainty for all parties involved in the securitization of market loans, from banks to noteholders. In the past, the lack of a rule has led to inconsistent and conflicting decisions when states have to decide who is the “real lender” responsible for complying with state laws and paying fees.

It seems likely that Omarova will require online lenders to be licensed in every state they operate in, rather than suggesting a flexible alternative.

“In an environment where consumer protection is a priority, there will be more regulatory risks associated with securitization receivables, whether they are more traditional consumer asset classes or fintech,” said an attorney. specializing in securitization. “[Omarova] panicked my clients.


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