On July 20, the OCC issued a proposed rule clarifying that a nationally chartered bank or federal savings association (“FSA”) 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.
The OCC further noted that the proposal “would operate together with the OCC’s recently finalized Madden-fix rule,” which provides that federal preemption of state usury laws continues to apply to loans originated by national banks after they are sold to non-banks, to “fulfill[] [the OCC’s] responsibility to resolve ambiguities in the Federal banking laws it is charged with administering and ensuring clarity and uniformity for the banks it supervises.” When combined with the Madden-fix rule, the proposed rule, if finalized, could encourage a growth in originations through the bank-partnership model involving national banks.
The proposed rule emphasized, however, that the bank-partnership model does not relieve a bank from ensuring that the loan is “made” both in a safe and sound manner and in accordance with applicable laws and regulations.
Comments are due on the proposed rule by September 3, 2020. Given strong opposition from certain state regulators and consumer groups, the proposed rule might draw a judicial challenge to its validity, and there could also be Congressional interest in the proposal.