The Attorneys General of California, Illinois, and New York have filed their opposition to the OCC’s cross-motion for summary judgment in their lawsuit to enjoin the OCC’s final rule (Rule) purporting to override the Second Circuit’s Madden decision as to national banks and federal savings associations.  In their filing, the AGs also reply to the OCC’s opposition to their summary judgment motion.  The OCC must file its reply to the AG’s opposition to its summary judgment motion by February 25, 2021, and a hearing on the summary judgment motions is scheduled for March 19, 2021.

It is unclear what impact the change to a Biden Administration will have on the OCC Rule.  The OCC’s reply will be particularly significant because it will be the OCC’s first filing in the case since President Biden’s inauguration.  In a letter sent to then President-elect Biden in December 2020, House Financial Services Committee Chairman Waters called upon the Biden Administration to rescind the OCC Rule as well as the FDIC’s Madden-fix rule.  Although President Biden has not yet nominated a new Comptroller of the Currency, it is possible the OCC will want to revisit the Rule and decide to no longer defend it in the lawsuit.  (Similar uncertainty exists as to the OCC’s “true lender” rule and the FDIC’s Madden-fix rule which are also the subject of pending litigation.  While FDIC Chairman McWilliams, appointed by former President Trump, has indicated that she plans to remain in her position as Chairman until her five-year term ends in 2023, Democrats will hold a majority of FDIC seats.)

In their latest filing, the AGs make the following principal arguments:

  • The OCC failed to comply with the National Bank Act (NBA) provision (Section 25b), added by the Dodd-Frank Act, that only permits the OCC to issue a rule that preempts state law if the state law significantly interferes with a national bank’s exercise of its powers.  In response to the OCC’s claim that it did not make a preemption determination subject to Section 25b but instead construed the substantive scope and meaning of NBA Section 85, the AGs argue that the OCC’s interpretation of a statute can still be subject to Section 25b and that the OCC’s Rule interprets Section 85’s preemptive scope by stating that Section 85 applies to loan buyers.
  • The OCC only has authority to regulate the conduct of banks.  Because the OCC Rule only speaks to the interest that a loan buyer can charge after a bank transfers a loan, the Rule only governs the conduct of non-banks and therefore unlawfully exceeds the OCC’s authority.
  • The OCC Rule conflicts with the plain language of Section 85 and 12 U.S.C. §1463 which, respectively, speak only to interest that a national bank or federal savings association may charge.
  • The absence of language in Section 85 regarding loan buyers does not create a “gap” for the OCC to fill without a delegation of authority from Congress for the OCC to promulgate a rule regulating interest charged by non-bank buyers of national bank loans.
  • Unlike contract rights, Section 85 preemption is a statutory privilege that cannot be assigned.
  • The OCC Rule is arbitrary and capricious because it is based on speculation regarding Madden’s negative impact on credit markets and there is contradictory evidence indicating Madden did not have a significant negative effect on credit availability.  The OCC also failed to consider the Rule’s impact on facilitating predatory lending arrangements between national banks and non-banks.

We will report ensuing developments.