In remarks made during a recent online event held by the Online Lending Policy Institute, Acting Comptroller of the Currency Brian Brooks indicated that the OCC will soon be issuing a “true lender” proposed rule to supplement its recently-released final rule intended to remove the legal uncertainty created by the Second Circuit’s Madden decision.
While the OCC’s final rule confirmed that the assignee of a loan made by a national bank or federal savings association can charge the same interest rate that the bank or savings association is authorized to charge under federal law, the final rule did not address which entity is the “true lender.” According to Acting Comptroller Brooks, the OCC realized when it issued the final rule that it had left a “true lender gap” and will seek to “plug that gap” through the proposal.
He indicated that the proposal will contain bright line rules for determining “what is a true lender” and “what is a rent-a-charter scheme.” The proposal will also make clear that a loan is not necessarily “legal” because a bank is the “true lender” but that, instead of a state regulator, the OCC will be the enforcement channel to address the loan’s legality when the bank is the “true lender.” In Mr. Brooks’ view, the OCC is taking this approach because clear, non-subjective rules are needed to avoid litigation. He also indicated that he expects the FDIC to soon finalize its proposed rule to address the uncertainty created by Madden for loans originated by state banks and to partner with the OCC in formulating a “true lender” proposed rule.
In his remarks, Acting Comptroller Brooks indicated that addressing fintech and its effect on the banking system is a top priority for him. He stated that the OCC is engaged in a supervisory initiative to design examination procedures and clear guidance for its examiners to use in connection with examinations involving bank fintech partnerships and fintech charter applications.
We are pleased both that the OCC has squarely addressed the problem created by Madden in its final rule (an action we had advocated for) and that it intends to also address the “true lender” issue. However, despite these encouraging developments, significant risks remain. As Mr. Brooks noted in his remarks, Congress could attempt to use the Congressional Review Act to override the OCC’s final rule regarding Madden. It might similarly attempt to override a final “true lender” rule adopted by the OCC. Also, if elected President this fall, former Vice-President Biden could appoint a new Comptroller who does not share Mr. Brooks’ views.