As Lender Law Watch reported in July 2020, the OCC issued its proposed True Lender Guideline in July 2020 to clarify which company will lend and when, in order to remove the legal uncertainty that is holding many banks and corporations away To enter into partnerships to offer credit to consumers, the “credit is given as part of a credit partnership between a bank and a third party”. On October 27, 2020, the Office of the Comptroller of the Currency (OCC) has its definitive True Lender Rule (Final rule).
The Final Rule of the OCC defines a test to determine when a bank is granting a loan and is thus the “real lender” in the credit relationship. A bank grants a loan if at the time of granting (1) the bank is named as the lender of the loan agreement or (2) the bank is financing the loan. In situations where more than one bank could be the real lender – for example, if one bank is the “lender” named in the loan agreement and another bank is funding the loan – the final rule is that the real lender is the named bank Lender in the loan agreement. The OCC notes that the final rule only applies to national banks and federal savings banks.
Some commentators have pointed out that this rule can lead to “inappropriate rental-A-charter” loan programs that allow certain lenders to circumvent state interest rate caps and state consumer protection laws by simply including the National Bank’s name on the loan agreement and ” enable[ing] The OCC takes note of this concern and states that this definitive rule will “hold banks responsible for all loans they make, including those made under marketplace lending. Partnerships or other loan sales agreements are given ”. In addition, acting auditor Brian Brooks said in a recent statement that the final rule “makes it clear that banks maintain compliance with the loans they make”.
This last rule will “work together” with the The OCC rule to confirm the “valid-if-creation” doctrine– the doctrine that a transaction that is valid when made remains valid in transit so that “[w]When a bank issues a loan according to the test specified in [the Final Rule], the bank can subsequently sell, assign or otherwise transfer the loan without affecting the permissible interest term, which is determined by state law. “
The OCC’s final rule will have a significant impact on the financial industry as it will likely encourage banks to continue partnering, which will ultimately expand access to credit.