Yesterday, by a vote of 52-47, the Senate passed the resolution introduced by Democratic Senators under the Congressional Review Act (CRA) to overturn the OCC’s “true lender” final rule.  The rule addresses when a national bank or federal savings association should be considered the “true lender” in the context of a partnership with a third party.  Three Republican Senators voted in favor of the resolution: Cynthia Lummis, Marco Rubio, and Susan Collins.

According to media reports, the White House issued a statement before the vote supporting the CRA resolution.  The resolution will now be voted on by the Democratic-controlled House where it is expected to pass.

Pursuant to the CRA, the enactment of a disapproval measure would preclude the OCC from subsequently reissuing the rule or adopting a new rule that is substantially the same as the disapproved rule unless “the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.”

A Congressional override of the rule would render moot the lawsuit filed by a group of state attorneys general in January 2021 seeking to set aside the rule.

Having submitted a comment letter to the OCC in support of the true lender rule when it was proposed, we are obviously disappointed by the Senate vote. In our view, the rule established a clear and logical bright line confirming and clarifying that a bank or savings association is properly regarded as the “true lender” when, as of the date of origination, the bank is named as the lender in a loan agreement or funds the loan.  An override of the rule will deprive banks and their partners of the certainty the rule would have provided.

The impending rejection of the OCC true lender rule highlights the risks involved in bank-model lending programs and the need to structure these programs thoughtfully, with a view to the risks.  While most of the legal action in this space has been in the context of high-rate programs, with APRs near or in excess of a triple-digit range, authorities in Colorado and Maryland have challenged programs with APRs of 36% or less.