By Nicole D. Prysby, J.D.
Under the final rule, a bank is the "true lender" if, as of the date of origination, it is named as the lender in the loan agreement or funds the loan.
The Office of the Comptroller of the Currency issued a final rule that provides that a bank is the "true lender" of a loan if, as of the date of origination, it is named as the lender in the loan agreement or funds the loan. Two Democratic members of the Senate Committee on Banking, Housing, and Urban Affairs issued press releases criticizing the true lender rule and stating that it will allow payday and other non-bank lenders to funnel high-interest loans through national banks. Consumer advocacy groups also responded to the announcement criticizing the rule and stating that it will allow predatory lenders to evade state usury limits by laundering money through banks able to charge exorbitant interest rates.
On October 27, 2020, the OCC announced that it issued a final rule regarding when a national bank or federal savings association makes a loan and is the "true lender," including in the context of a partnership between a bank and a third party. The rule provides that a bank makes a loan and is the true lender if, as of the date of origination, it is named as the lender in the loan agreement or funds the loan. The rule specifies that if, as of the date of origination, one bank is named as the lender in the loan agreement for a loan and another bank funds that loan, the bank that is named as the lender in the loan agreement makes the loan. The rule also clarifies that as the true lender of a loan, the bank retains the compliance obligations associated with the origination of that loan. The OCC also issued a Bulletin (OCC Bulletin 2020-92) to banks and examining personnel with similar information on the rule. The OCC issued its proposed true lender rule in July 2020 (see Banking and Finance Law Daily, July 21, 2020). In the preamble to the final rule, the OCC discussed comments received on the proposal and stated that the final rule will not allow banks to enter into "rent-a charter" schemes, as some commenters argued, because the OCC has already issued guidance to banks warning them about predatory lending, and expects banks to institute safeguards to manage risks associated with their third-party relationships.
There was significant reaction to the rule from members of Congress and consumer advocacy groups. Sen. Sherrod Brown (D-Ohio), ranking member of the Senate Banking Committee, issued a press release stating that the rule gutted consumer protections law and will allow payday and other non-bank lenders to funnel their high-interest, abusive loans through national banks. Sen. Chris Van Hollen (D-Md), a member of the Senate Banking Committee, released a statement criticizing the rule, calling it "yet another attempt by the Trump Administration to rush through a deeply misguided regulation that will ultimately take a toll on American families doing their best to get by."
Consumer Reports issued a press release stating that the rule will make it easier for predatory lenders to evade state laws limiting interest rates by partnering with national banks, and that the rule undermines state protections and "gives predatory lenders the green light to trap consumers in high interest debt by ‘renting-a-bank’ that doesn’t have to abide by state consumer protection laws." Consumer Reports pointed out that laws in at least forty-five states that protect consumers from high-interest nonbank installment loans and other predatory loans could be effectively preempted.
The Consumer Federation of America (CFA) issued a press release stating that the rule calls into question the states’ power to independently regulate interest rates and "will unleash predatory lending in all 50 states." CFA stated that interest rate limits allow states to protect residents from predatory loans, and that the rule will allow predatory lenders to evade state usury limits by laundering money through banks able to charge exorbitant interest rates.
Companies: Consumer Federation of America; Consumer Reports
MainStory: TopStory BankingOperations ConsumerCredit FinTech InterestUsury Loans Preemption StateBankingLaws
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