OCC Issues Proposed "True Lender" Rule
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- On July 20, 2020, the Office of Comptroller of the Currency (the “OCC”) issued a notice of proposed rulemaking (“NPR”) that would establish when a national bank or federal savings association, in the context of a partnership between the bank and a third party, is the “true lender” when making a loan. Under the proposed rule a bank is a “true lender” if, as of the date of origination, it is either: (1) named as the lender in the loan agreement or (2) funds the loan.
- The proposed rule, the OCC asserts, would reduce legal uncertainty thereby enabling banks to fully exercise the lending authority granted to them under federal law, manage their risk and leverage their balance sheets to increase the supply of available credit. The NPR also emphasizes the extensive bank regulation that would be applicable to loans for which a bank is determined to be the “true lender.”
- The proposed rule, in conjunction with the OCC’s recent reaffirmation of the valid when made doctrine, would provide clarity as to when a bank is a “true lender” and, where it is such a lender, allow a bank to determine the permissible interest rates pursuant to federal law without concern about the effect of any future transfer of such loan. Comments on the proposed rule are due on or before September 3, 2020.