American Financial Services Association

OCC Adopts AFSA’s Suggestions, Finalizes ‘True Lender’ Rule

Blog Posts

OCC Adopts AFSA’s Suggestions, Finalizes ‘True Lender’ Rule

This week, the Office of the Comptroller of the Currency (OCC) finalized the “true lender” rule. At issue is partnerships between third-party nonbanks and federal savings associations or national banks which have led to loans being underwritten at interest rates exceeding other states’ rate caps. Consumer groups have been critical of these partnerships, citing that such agreements undermine consumer protections and that lenders are predatorily using banks to evade usury laws. Previously, the OCC clarified that interest rates on loans are valid even if sold to nonbanks and the rate exceeds other states’ rate caps, known as the “Madden Fix.”

The final rule clarifies that banks are considered the “true lender” if on the date of origination, they are listed as the lender in the loan agreement or if they provide funding for the loan. If on the day of origination, one bank is listed as the lender and another bank funds the loan, then the bank that is listed as the lender is the “true lender.” Additionally, the rule addresses “Rent-a-Charter” arrangements by clarifying that true lenders of loans are responsible for all the compliance obligations of the underwritten loan.

AFSA is pleased that the OCC fully adopted AFSA’s comments it previously made to the agency. In the letter, AFSA asked that the OCC clarify that “funding a loan under the Proposed Rule excludes banks purchasing retail installment contracts (RICs) from automobile dealerships or otherwise clarify that the Proposed Rule will not affect well-established practices in the indirect vehicle finance market.” In addition, AFSA emphasized the importance of defining when a bank “funds a loan.”

November 2nd, 2020 by