The final step in the demise of the OCC’s true lender rule occurred yesterday with President Biden signing the resolution under the Congressional Review Act (CRA) overturning the rule that was passed by the House and Senate.

On August 9, 2021, from 12:00 p.m. to 1:00 p.m. ET, Ballard Spahr will hold a webinar, “Congress Overrides the OCC’s True Lender Rule: What Are the Risks for Banks and Their Loan Program Nonbank Partners?”  Click here to register.

Pursuant to the CRA, the enactment of a disapproval measure precludes 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.”  The Congressional override of the rule also renders moot the lawsuit filed by a group of state attorneys general in January 2021 seeking to set aside the rule.

Last week, by a vote of 218-208, the House of Representatives 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.  Last month, by a vote of 52-47, the resolution was passed by the Senate.  President Biden is expected to sign the resolution.

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.”

Following the House vote, Acting Comptroller of the Currency Michael Hsu issued a statement in which he reaffirmed “the agency’s long-standing position that predatory lending has no place in the federal banking system” and indicated that “[m]oving forward, the OCC will consider policy options, consistent with the Congressional Review Act, that protect consumers while expanding financial inclusion.”

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

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.

 

As discussed in our earlier blog, the Senate Banking, Housing and Urban Affairs Committee held a hearing on April 28, 2021 entitled “The Reemergence of Rent-a-Bank?”.

The hearing focused primarily on the final “True Lender” rule issued by the OCC on October 27, 2020, which was effective December 29, 2020. The True Lender rule clarifies when, under existing law, a national bank is the “true lender” that makes a loan in the context of an arrangement between the bank and a non-bank entity that facilitates or services the loan. Since the non-bank entity frequently is a fintech, these arrangements often are referred to as bank-fintech partnerships or marketplace lending arrangements. Democrats have launched an effort to invalidate the True Lender rule by means of Congressional action under the Congressional Review Act (CRA). Separately, eight attorneys general representing seven states and the District of Columbia  have filed an action in federal district court in the Southern District of New York seeking to set aside the rule.

Predictably, at the hearing, True Lender rule detractors (the Democratic committee members and their witnesses) called upon Congress to overturn the True Lender rule, using the majority of their speaking time to claim the True Lender rule would enable (and to generally decry the evils of) unfair rent-a-bank schemes, as well as predatory lending, payday lending, usury, and debt traps. These speakers consistently conflated payday lending and bank-fintech partnership lending, and ignored correction of this mis-characterization by other witnesses.

True Lender rule proponents (the Republican committee members and their witnesses) explained the True Lender rule and its benefits to consumers, the banking system, and the economy as a whole. They pointed out that states’ establishment and enforcement of lower rate caps (which True Lender rule opponents believe would accelerate if the True Lender rule were to be invalidated) will not result in the availability of lower cost credit; rather, this is likely to eliminate availability of credit to those who need it most.

A video recording of the hearing, written versions of the opening remarks of Committee Chairman Sherrod Brown (D-OH) and Ranking Member Patrick J. Toomey (R-PA), and the written testimony submitted by the witnesses, are available on the Committee website.

In his introduction, Committee Chairman Sherrod Brown (D-OH) expressed concerns that the True Lender rule would give a “free pass” to predatory payday lenders and so-called “rent-a-bank schemes”.

Ranking Member Patrick J. Toomey (R-PA) explained this is not the case: Under the True Lender rule, the OCC “holds a national bank responsible for a loan when, at the time the loan is originated, [the national bank] is named in the loan agreement or it funds the loan.” These loans are subject to OCC supervision to ensure the national bank complies with fair lending requirements and all other federal consumer protection laws. The rule disallows “rent-a-bank schemes” where the bank allows its name to be used on loan documents but disclaims any compliance responsibility for loans, as pointed out in a recent letter to the Committee from Blake Paulson, Acting Comptroller of the Currency. Senator Toomey explained the importance of the True Lender rule in facilitating credit availability on reasonable terms, in particular to higher-risk, marginalized consumers.

North Carolina Attorney General Josh Stein worried that the True Lender rule provides a get-out-of-jail-free card to predatory lenders, and claimed the rule exceeds the OCC’s authority – an argument addressed and refuted in detail by the OCC in the Supplementary Information accompanying the rule when published.

Lisa F. Stifler, Director of State Policy at the Center for Responsible Lending, a non-profit affiliated with a network of credit unions, voiced similar fears, including  that the True Lender rule would support predatory lending and payday loans at excessively high rates to small businesses as well as consumers.

Reverend Dr. Frederick D. Haynes, III cited opposition to payday lending and predatory lending by the faith-based groups he represents, mentioned concerns that the True Lender rule would “enable predatory lenders to ignore state interest rate caps by paying a bank willing to masquerade as the ‘true lender’ ”, and called on Congress to pass a 36% rate cap in addition to supporting a resolution to overturn the True Lender rule.

Brian Brooks, former Comptroller of the Currency, explained how the True Lender rule (issued during his tenure as Comptroller) operates in conjunction with the OCC’s Valid-When-Made rule and national bank rate exportation powers under the National Bank Act; the vital role of the True Lender rule in enabling expansion of credit availability to lower-income consumers on reasonable terms, with service improvements, tools and educational features enabled by fintechs; and the rule’s importance to bank balance sheet management and the safety and soundness of the banking system.  He pointed out that contrary to the claims of the rule’s opponents, the rule negates “rent-a-charter schemes” because it makes clear that the bank, as true lender, retains all compliance obligations with respect to the loans and “can’t walk away” from this responsibility:

But another purpose of the True Lender Rule was to address allegations about “rent-a-charter” schemes. While “rent-a-charter” is not a legal or technical concept, OCC staff took the concept to refer to situations in which a nonbank paid a fee to a bank for the sole purpose of evading legal requirements, without the bank actually being involved in loan underwriting, risk management, or legal compliance. In short, the OCC took “rent-a-charter” to mean an arrangement in which the nonbank was seeking to ensure that no one was actually responsible for consumer protection or other compliance obligations. That is precisely why the OCC, in issuing the True Lender Rule, expressly stated that it would “hold [] banks accountable for all loans they make, including those made in the context of marketplace lending partnerships or other loan sale arrangements.” Specifically, the OCC emphasized its “expectation that all banks [will] establish and maintain prudent credit underwriting practices and comply with applicable law, even when they partner with third parties.” If not, “the OCC will not hesitate to use its enforcement authority consistent with its longstanding policy and practice.” This is in contrast with historical practice in which banks sought to minimize their role in loan origination at the same time their marketing partners sought to disclaim responsibility as the true lender. Under the True Lender Rule, the days of each party pointing the finger at the other are over; borrowers and regulators now know who is responsible if the bank either is named on the note or funds the loan on the date of origination.

Mr. Brooks corrected the impression conveyed by other witnesses that the True Lender rule somehow would support abusive payday lending, explaining that national banks are not allowed to make the types of loans generally described as payday loans (and therefore could not make them in the context of a bank – fintech partnership), and noting that payday lenders are state-licensed entities, therefore the licensing state has the responsibility to supervise them and the authority to revoke their licenses.

Dr. Charles W. Calomiris referred committee members to his written testimony, which summarizes research demonstrating that lower income borrowers suffer disproportionately from unreasonable usury rate caps. He also refuted earlier speakers’ claims that bank-fintech partnerships promote payday loans: “The new fintechs should not be confused with payday lenders: they are the competition to payday lenders.” He cited new products offered by innovative fintechs that provide value and lead to improved financial inclusion for unbanked or underbanked consumers, detailed in an appendix provided with his written testimony.

Committee member questions addressed to the witnesses, and the responses, generally followed the same themes.

In response to a question from Senator Brown, AG Stein stated his belief that the True Lender rule will make it challenging for states to pursue predatory rent-a-bank schemes, and asserted that the state of North Carolina has made a conscious choice in its legislative approach to intentionally cause a shortage of high-cost loans, thereby making it more difficult or impossible for low- to moderate-income, higher-risk consumers to obtain loans. Senator Toomey then asked Mr. Brooks whether the choice described by AG Stein was “patronizing”; Mr. Brooks responded that consumers should be allowed to make their own decisions.

Senator Thom Tillis (R-NC), in questions to Mr. Brooks, emphasized the importance of credit availability, which would be supported by the True Lender rule. Mr. Brooks noted the True Lender rule will further the OCC’s goal of encouraging national banks to engage in small dollar personal lending, which would benefit consumers because the loans would be made by well-supervised entities.

Senator Elizabeth Warren (D-MA), in questions to Mr. Brooks, expressed doubt as to whether the OCC’s supervision of national banks is sufficiently zealous to protect consumers.

The Committee members’ comments and questions made it clear that their respective minds already are made up as to how they would vote on a CRA resolution to invalidate the True Lender rule, regardless of the data and information provided by the witnesses. At this writing, most observers predict that the True Lender rule will not be overturned, either because Congressional leaders do not think it merits floor time and think a Biden-appointed Comptroller will take care of their concerns, or, if put to a vote, because moderate Democrats understand the economic issues and will not support invalidating the rule.

The deadline for a CRA vote is estimated to be in mid- to late May.

The OCC’s true lender rule was intended to create a bright line test for when a national bank or federal savings association should be considered the “true lender” in the context of third party partnerships but Congress overturned the rule.  After reviewing the relevant background, we examine the Congressional override’s implications for future federal true lender rulemaking and its impact on existing law, key federal and state court challenges and decisions, state legislative and administrative developments, and risk mitigants for bank/nonbank partnerships, including potential loan program structures.

Alan Kaplinsky, Ballard Spahr Senior Counsel, hosts the conversation, joined by Jeremy Rosenblum and Ron Vaske, partners in the firm’s Consumer Financial Services Group, and Mindy Harris, Of Counsel in the Group.

Click here to listen to the podcast.

On Wednesday, April 28, the Senate Banking Committee will hold a hearing, “The Reemergence of Rent-a-Bank?

In addition to Brian Brooks, the former Acting Comptroller of the Currency, the scheduled witnesses are Josh Stein, North Carolina Attorney General, Lisa Stifler, Director of State Policy, Center for Responsible Lending, Dr. Frederick D. Haynes, III, Senior Pastor, Friendship-West Baptist Church, Dallas, Texas, and Dr. Charles Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia Business School.  Dr. Calomiris previously served as OCC Senior Deputy Comptroller for Economics under Mr. Brooks.

The topics discussed at the hearing are expected to include the resolution that has been introduced under the Congressional Review Act (CRA) to overturn the OCC’s “true lender” final rule (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.

A group of state Attorneys General that includes Josh Stein, the North Carolina AG who is a scheduled witness, recently sent a letter to Senate and House members expressing their “strong objections” to the Rule.  The AGs assert that the Rule would sanction the use of “rent-a-bank” schemes and call upon lawmakers to override the Rule under the CRA.

Blake Paulson, the Acting Comptroller of the Currency, recently sent a letter to Senators Brown and Toomey “to make them aware of the rule’s intended effect and the adverse impact of overturning the rule.”  In the letter, he discusses the Rule’s role in expanding access to affordable credit products from mainstream financial services providers and the OCC’s intention to use its supervisory and enforcement authorities if a bank making loans in partnership with a third party fails to meet its compliance obligations.  Mr. Paulson also warns that disapproval of the Rule under the CRA “will constrain future Comptrollers’ ability to address the true lender issue and may limit the OCC’s ability to take supervisory and enforcement action against banks that would have been deemed to have ‘made’ the loan under the true lender rule.”   Mr. Paulson asserts that because of this “unintended consequence” of a CRA override, instead of using the CRA, any changes to the Rule should be made through the OCC’s rulemaking process and in accordance with the Administrative Procedure Act.

According to a Politico report, a spokesperson for Senator Brown called Mr. Paulson’s letter “highly irregular” and “inappropriate.”  In our view, the comments attributed to Senator Brown’s spokesperson are off base.  We can’t think of anyone more qualified than the Acting Comptroller (who  held a senior position at the OCC for many years and was involved in the rulemaking process) to advocate for the Rule.

 

The OCC has filed a Statement of Recent Decision in Support of Defendants’ Motion for Summary Judgment in the lawsuit filed by state AGs 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.

The recent decision submitted by the OCC, Robinson and Spears v. National Collegiate Student Loan Trust, involves the applicability of Pennsylvania interest rate laws to student loans originated by a national bank and sold to a statutory trust.  The plaintiffs (a borrower and co-signer) did not challenge the validity of the Rule but alleged that their loan were not “valid when made” because the interest rate was usurious under Pennsylvania law.  They also argued that the national bank was not the true lender because it never intended to own the loan and never had an economic interest in it.

The Massachusetts federal district court rejected both of the plaintiffs’ arguments.  With regard to their valid when made argument, the court determined that the interest rate on the loan was a rate that the national bank could permissibly charge under the National Bank Act (NBA).  Accordingly, because the plaintiffs’ loan was valid when made, the court found that it could not be invalidated by its assignment to the trust.  Citing to the U.S. Supreme Court’s Smiley decision, the district court indicated that the Rule, as an interpretation of the NBA, was entitled to deference from the court.

With regard to the plaintiffs’ argument that the bank was not the true lender, the district court found that their argument was contradicted by the purchase agreement between the bank and the trust which, among other things, required the bank to fund and fully disburse the loans sold to the trust, and by the loan agreement which named the bank as the lender.

The OCC’s filing is its second in the case since President Biden’s inauguration.  Its first such filing was its reply in support of its motion for summary judgment.  The OCC is currently under the leadership of Acting Comptroller of the Currency Blake Paulson and President Biden has not yet nominated a new Comptroller of the Currency.  We have speculated that a new Comptroller might want to revisit the Rule.  However, the OCC’s filing of the new decision coupled with its decision to continue to defend the Rule in its reply in support of its motion for summary judgment rather than seek an extension to give the new Comptroller an opportunity to review the litigation makes it appear increasingly unlikely that a new Comptroller will change course.

 

Democratic Senators Sherrod Brown and Chris Van Hollen have introduced a resolution 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.

To be eligible for the special Senate procedure that allows a CRA resolution to be passed with only a simple majority, the Senate must act on the resolution during a period of 60 “session days” which begins on the later of the date when the rule is received by Congress and the date it is published in the Federal Register.  (If the period has not expired in the Congressional session during which the rule was adopted, it resets at the beginning of the next Congressional session.)  The OCC’s final rule was published in the Federal Register on October 30, 2020 and became effective on December 29, 2020.  Because the CRA 60-day period had not run before the last session of Congress adjourned, the 60-day period reset in its entirety in the new session of Congress that began in January 2021.  If the OCC rule were to be overturned under the CRA, it would be deemed not to have any effect at any time and the OCC would be foreclosed from adopting a comparable rule.

President Biden has not yet appointed a new Comptroller of the Currency.  One thoughtful commentator has suggested that the Democrats’ slim Senate majority makes a CRA reversal of the rule improbable.  This commentator suggests that the CRA resolution is primarily a messaging tactic intended to highlight that a new Comptroller has not yet been nominated and to raise the profile of the issue in the hopes that the next Comptroller will reopen the rulemaking.  However, in light of the discipline the Democrats have shown since the election, we would not rule out the possibility of a successful CRA resolution overturning the OCC true lender rule.

The OCC’s rule is also the subject of a pending lawsuit.  On January 5, 2021, the Attorneys General of New York, California, Colorado, the District of Columbia, Massachusetts, Minnesota, New Jersey, and North Carolina filed a complaint in a New York federal district court, seeking to set aside the final rule.

 

On January 5, 2021, the Attorneys General of New York, California, Colorado, the District of Columbia, Massachusetts, Minnesota, New Jersey, and North Carolina filed a voluminous Complaint in federal district court for the Southern District of New York against the OCC and Acting Comptroller of the Currency Brian Brooks, seeking to set aside the final “true lender” rule adopted by Acting Comptroller Brooks (the “Rule”), which became effective on December 29, 2020.

As discussed in our comment letter in support of the Rule, we believe the Rule, coupled with the OCC’s earlier “valid when made” rule (which has been challenged in court by the States of California, Illinois and New York), has the potential to benefit millions of consumers, as it would eliminate confusion, uncertainty, and legal risk for banks and their counterparties as they work together to make credit more readily available nationwide.  However, the AG plaintiffs in the new lawsuit instead view the Rule as “an unlawful attempt” by the OCC to “facilitate predatory lending” and support “rent-a bank schemes.”

The AGs’ Complaint borrows many policy-related arguments from the complaint challenging the OCC’s valid when made rule, and incorporates (and in some instances cites) elements from comment letters previously filed in opposition to the Rule when it was originally proposed, including a comment letter signed by 24 Democratic State AGs.

The new action alleges that the OCC violated the Administrative Procedure Act (“APA”) and argues that the court should set the Rule aside because it is (1) in excess of statutory jurisdiction, authority, and limitations, and short of statutory right; (2) arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law; and (3) an action taken without procedure required by law.

In support of its claims, the Complaint argues in detail that: (1) “the statutes relied upon by the OCC do not authorize it to preempt state laws”; (2) the statutory terms are clear and therefore not subject to administrative agency interpretation; (3) the Rule is an unreasonable interpretation of federal law, citing the Madden decision for the proposition that national banks enjoy preemption of state laws because they are subject to OCC oversight but that the Rule would enable preemption of state law for the benefit of unsupervised non-banks; (4) the OCC failed to comply with provisions of the Dodd-Frank Act imposing certain requirements on OCC actions preempting state consumer financial laws; and (5) the Rule is not entitled to deference, again citing the Dodd-Frank sections limiting OCC preemption of state consumer financial laws.

The Complaint also includes lengthy policy arguments, and statements scattered throughout claiming the OCC’s rulemaking process and responses to comment letter criticisms were flawed and inadequate.  To support the position that the adoption of the Rule is “arbitrary and capricious,” the Complaint claims that the Rule constitutes a reversal of prior longstanding OCC policy opposing “Rent-a-Bank schemes.”  The Complaint further avers that the OCC’s reliance on its robust oversight authority over national banks to prevent abusive practices in bank programs involving non-banks is unsupportable, and expresses doubt that the OCC uses its supervisory powers to prevent predatory lending.

The OCC anticipated and refuted many of the Complaint’s allegations in the Supplementary Information published with the final Rule.  In this regard, the Supplementary Information included: (1) an explanation supporting the OCC’s authority to interpret the statutes cited; (2) a lengthy discussion, echoed in the OCC General Counsel’s recent Interpretive Letter 1173 , explaining that the Dodd-Frank requirements relating to conflict preemption of a state consumer financial law are not applicable to the Rule; and (3) a discussion of why the rulemaking does not violate the APA.  A key passage in the Supplementary Information addresses the policy arguments advanced by the AGs in their Complaint:

In fact, this rulemaking would solve the rent-a-charter issues raised and ensure that banks do not participate in those arrangements.  As noted in the proposal, the OCC’s statutes and regulations, enforceable guidelines, guidance, and enforcement authority provide robust and effective safeguards against predatory lending when a bank exercises its lending authority.  This rule does not alter this framework but rather reinforces its importance by clarifying that it applies to every loan a bank makes and by providing a simple test to identify precisely when a bank has made a loan.  If a bank fails to satisfy its compliance obligations, the OCC will not hesitate to use its enforcement authority consistent with its longstanding policy and practice.

While this litigation certainly was expected, the nature of the OCC response remains to be seen, especially since a Comptroller appointed by President-elect Biden may well have views that differ from those of Acting Comptroller Brooks.  The possibility of a settlement including elements such as additional rulemaking should not be disregarded.

Of course, this new lawsuit is not the only (or perhaps most serious) risk to the Rule.  In addition to the possibility of a revocation of the Rule through new rule-making, a challenge to the Rule under the Congressional Review Act seems almost certain in light of the assumption of Democrat control of the Senate, in addition to the House and the Administration.  The fight is only beginning.

 

The OCC has issued a final rule to address when a national bank or federal savings association should be considered the “true lender” in the context of a partnership with a third party.  The final rule, adopted only 54 days after the close of the comment period, is effective 60 days after the date it is published in the Federal Register.

While the OCC’s final “Madden fix” (valid-when-made) rule confirmed that the assignee of a loan made by a national bank or federal savings association may charge the same interest rate that the bank or savings association is authorized to charge under federal law, it did not address when a loan is deemed to made by a bank or savings association in the first place.  The “true lender” rule interprets the provisions of the National Bank Act (NBA), the Federal Reserve Act, and the Home Owners’ Loan Act (HOLA) (12 U.S.C. 24, 371 and 1464(c), respectively) that allow national banks and federal savings associations to engage in lending, by clarifying when a bank has exercised its lending authority.

Except for the addition of new subsection (c) that addresses a scenario in which one bank is named as the lender on the loan agreement and another bank funds the loan, the final rule adopts the proposed rule’s text.  The final rule provides:

(a) For purposes of this section, bank means a national bank or a Federal savings association.

(b) For purposes of [the provisions of the NBA, Federal Reserve Act, and HOLA that authorize national banks and federal savings associations to extend credit and the provisions of the NBA and HOLA that govern the interest permitted on national bank and federal savings association loans (12 U.S.C. 85 and 1463 (g), respectively)], a national bank or Federal savings association makes a loan when the national bank or Federal savings association, as of the date of origination:

           (1)  Is named as the lender in the loan agreement; or

           (2) Funds the loan.

(c) 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 final rule provides a bright line test for determining when a bank is the lender for loans made with substantial assistance from a fintech or other non-bank company and/or when the fintech or non-bank company acquired all or a predominant economic interest in the loan.  Having submitted a comment letter in support of the OCC’s proposal, we are pleased that the OCC has finalized the rule substantially as proposed.  We continue to hope for a substantially similar “true lender” rule from the FDIC.

In its discussion of the final rule, the OCC indicated that the funding prong of its true lender test generally does not include lending or financing arrangements such as warehouse lending, indirect auto lending (through bank purchases of retail install contracts from auto dealers), loan syndications, and other structured finance.  This is because such arrangements do not involve a bank funding a loan at the time of origination.  The OCC also pointed out that, in contrast, the bank is the true lender in a table funding arrangement when the bank funds the loan at origination.  (In table funding arrangements, the bank is not named as the lender in the loan agreement.) 

While the OCC’s proposal garnered considerable support, it also met with significant criticism from certain state regulators and consumer groups who filed comment letters opposing the proposal.  The core criticism was the claim that the OCC’s proposal would support predatory lending and “rent-a-bank” schemes and therefore would be harmful to consumers and small businesses.  The OCC responded by pointing to its intent to use the considerable supervisory and enforcement tools at its disposal to ensure that the participants in bank-nonbank partnerships do not engage in unfair, deceptive or abusive acts and practices.

Ultimately, the final rule’s fate could well turn on the results of next week’s election. If elected President, Joe Biden could appoint a new Comptroller of the Currency who could then initiate new rulemaking to revoke the rule.  Also, if the election produces a “blue wave” with Democrats retaining control of the House and gaining control of the Senate and the Presidency, Congress could attempt to use the Congressional Review Act (CRA) to override the final rule.  Under the CRA, a joint resolution of disapproval cannot be filibustered in the Senate and can be passed with only a simple majority.

The enactment of a CRA joint resolution disapproving a final rule would prevent the rule from taking effect.  If a rule has already become effective, it no longer continues in effect and “shall be treated as though such rule had never taken effect.”  A joint resolution’s enactment would also bar an agency from reissuing the rule “in substantially the same form” or issuing 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.”

If a successful CRA resolution is not forthcoming, we would expect one or more lawsuits challenging the Rule under the Administrative Procedure Act.  (Two lawsuits have been filed challenging the OCC’s “Madden fix” rule.)  Of course, we will report on all significant developments as they come down the pike.