On Monday and Tuesday, PLI held its two-day 25th Annual Consumer Financial Services Institute, which I co-chaired. During the morning session of the first day, I co-moderated two consecutive panel discussions titled “Federal Regulators Speak,” with the first panel featuring CFPB and FTC representatives and the second panel featuring OCC and FDIC representatives. The FDIC representative on the second panel was Leonard Chanin, Deputy to the FDIC Chairman.
After the OCC representative discussed the OCC’s “Madden-fix” and “true lender” rules, I asked Leonard why the FDIC has not yet issued its own “true lender” rule. Leonard responded that unlike the OCC which has statutory authority to determine when a loan is made by a national bank or federal savings association, the FDIC does not have similar authority under the Federal Deposit Insurance Act to determine when a loan is made by a state bank. According to Leonard, while the FDIC might be able to fill in certain “gaps,” state law controls when a loan is made by a state bank and the FDIC cannot preempt state law on this issue. Leonard contrasted the FDIC’s authority to issue its own “Madden-fix” regulation under Section 27 of the FDIA from its lack of authority under Section 27 to issue a “true lender” regulation.
While the FDIC may be willing to revisit the view expressed by Leonard, his remarks clearly dash any hopes that a “true lender” rule would be forthcoming from the FDIC in the near future. Without a bright-line standard similar to the OCC’s true lender standard for determining when a state bank is the lender in lending programs involving substantial assistance from a fintech or other non-bank company, state banks and non-banks involved in such programs continue to face the risk of true lender recharacterization by courts applying widely diverging, fact-intensive tests. As a result, when structuring such programs, state banks and non-banks need to be mindful of the relevant case law and consult with knowledgeable counsel so that they are best-positioned to defend against threats of true lender recharacterization.
It should also be noted that while the view expressed by Leonard might lead one to believe that it is preferable for a non-bank to partner with a national bank in lending programs instead of a state bank, there is still great uncertainty as to the viability of the OCC’s “true lender” rule. More specifically, an override of the rule by Congress under the Congressional Review Act is possible. Another possibility is that the Biden Administration will replace Acting Comptroller Brian Brooks with an (Acting) Comptroller who will initiate a rulemaking to repeal or significantly amend the OCC’s “true lender” rule.