the Office of the Auditor (OCC) has proposed a rule that determines when a National Bank or a Bundessparkasse (bank) grants a loan and is the “real lender” within the framework of a partnership between a bank and a third party – possibly an online lender.
The proposed rule has been expected for several weeks after the selection from Brian Brooks as acting auditor of the currency. Brooks has moved quickly to provide more clarity on the regulatory relationship with online lenders as well Fintech in general.
The OCC notes that credit relationships between banks and third parties can facilitate access to affordable credit and thus benefit consumers. However, the relationships are subject to increasing uncertainty about the legal framework that applies to loans granted under these relationships. This uncertainty can deter banks and third parties from entering into relationships, restrict competition, and discourage fintech innovations that result from these partnerships, which can limit access to affordable credit.
The proposed regime would eliminate this uncertainty by having a bank grant a loan and be the “true lender” if, at the time of granting, it is named (1) as the lender in the loan agreement or (2) the loan is financing the loan.
Congressman Patrick McHenry, the ranking member of the House of Representatives Financial Services Committee and long-time advocate of fintech innovation, made the following statement on the announced proposed rule.
“Today’s move by the OCC is another important step in bringing clarity to banks and non-banks about the ‘true lender’ doctrine. Clarity will lead to more innovation in financial services – which will ultimately lead to greater financial inclusion. Acting Auditor Brooks has worked diligently to advance financial technology and I applaud his swift action to remove this uncertainty that has hampered modernization. “
Last week, McHenry and all of the House Financial Services Committee Republicans, issued a letter to the OCC and the Federal Deposit Insurance Corporation (FDIC) in support of the “True Lender” rulemaking process to provide clarity that benefits consumers and businesses. Lawmakers said clarity on the matter would “promote a robust, competitive, nationwide credit market. The need for consumers and small businesses to have access to these lines of credit is compounded by the COVID-19 pandemic and the associated economic slowdown. “
The deadline for comments on the rule is September 3, 2020.