OCC releases final rule on real lenders – finance and banking

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United States: OCC publishes real lender final rule

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On October 27, 2020, the OCC published its final version of the True Lender Rule As discussed earlier on this blog, the OCC rule is designed to clarify the “real lender” doctrine, a legal test used by courts and regulators to determine whether a bank or its non-bank partner is the true lender in a credit transaction. . The true lender doctrine has caused uncertainty for banks, fintech companies, and others involved in the banking partnership model. The OCC final rule, which applies to national banks and federal savings associations, will provide much-needed certainty in the space and is a welcome first step in what will likely be a longer process of organizations. regulations that take into account modern lending practices.

The final rule follows the rule proposed by the OCC, with a small precision. After the proposed rule was published, some commentators noted that the rule, as drafted, could cause problems in cases where more than one bank could be considered the “true lender.” For example, if initially a bank was the lender on the loan agreement and another bank funded the loan, as the rule proposed by the OCC was worded, the two institutions could be considered the “real lender.” “. The OCC responded to this question by drafting a new provision stating that if, on the inception date, a bank is named as a lender in the loan agreement and another bank funds the loan, the bank named in the loan agreement The loan agreement is the “real lender.” According to the reasoning of the OCC, this approach makes it easier for clients to identify the party responsible for the loan by referring to the loan documents themselves. As a rule, a national bank or federal savings association is considered the ‘real lender’, as opposed to its non-bank partner, if it is (1) named in the loan agreement or (2) is financing the loan, and if two different banks are involved in the credit transaction, the link goes to the bank named on the loan agreement.

The additional information in the final rule addresses other commentators’ concerns as well. For example, several commentators expressed concern about the scope of the rule and called for the rule to be amended to clarify that the financing component does not include certain loan and financing arrangements, such as warehouse lenders, indirect auto lenders through bank purchases of retail contracts. , loan syndication or other structured financing. The OCC ultimately did not change the Final Rule to provide these clarifications, but noted that commentators were “correct that the funding portion of the proposed rule generally does not include these types of arrangements: they do not. do not involve a bank financing a loan at the time of inception. ”

Other stakeholders are concerned that the final rule may replace other regulatory regimes, in particular some consumer protection regulations. For example, one commenter suggested that the final rule would change the way account information in banking partnership agreements is reported under the Fair Credit Reporting Act. Responding to these concerns, the OCC noted that the final rule “does not affect the application of federal consumer finance laws”, including TILA, Regulation Z, Regulation X, RESPA, HMDA, ECOA or FCRA.

While the proposed rule, which comes into effect 60 days after its publication in the Federal Register, is a welcome addition, we are sure it will be challenged by its opponents. Indeed, in September, the attorneys general of several states sent a comment letter to Acting Currency Comptroller Brian Brooks requesting that the proposed rule be repealed. In addition, several states have pursued FDIC and the OCC on rules designed to provide a “Madden Fix“, a related issue facing FinTech companies and entities involved in banking partnership agreements. We anticipate litigation from state agencies challenging the OCC’s true lender rule and will remain at this point. listening to any new development.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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