OCC Proposes a Rule to Establish When a Bank Is the “True Lender” of a Loan: Proposed Rule Would Facilitate Use of Bank-Partnership Model in the Fintech Industry

Sullivan & Cromwell LLP - July 24, 2020

On July 20, the OCC issued a proposed rule clarifying that a nationally chartered bank or federal savings association is the “true lender” of a loan if, as of the date the loan’s origination, the bank “(1) is named as the lender in the loan agreement or (2) funds the loan.”  The OCC issued this proposed rule primarily to address bank-partnership models, in which a bank partners with a non-bank to facilitate loans to customers.  The partnership models are often done through online platforms as part of the growing FinTech industry.  Certain regulators and private plaintiffs had contended that it was the banks’ partners—not the banks themselves—that were the “true lenders” of the loans, and thus the normal federal protections for loans originated by national banks (including preemption of state usury laws) did not apply.  The proposed rule, if adopted, could greatly weaken, or eliminate, such challenges by giving national banks and FSAs a relatively straightforward way to ensure they are the true lenders of the loans.