Congress repeals OCC’s real lender rule


United States: Congress repeals OCC real lender rule

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On June 30, President Biden enacted a joint resolution to repeal the so-called Office of the Comptroller of the Currency’s (OCC) real lender rule. The rule was repealed under the Congressional Review Act (CRA), which allows Congress to repeal new federal regulations by passing a joint resolution of disapproval that must then be signed by the president. Federal regulations repealed under the CRA are treated as if they never came into effect.

The True Lender Rule has set a clear standard for identifying the “true lender” in lending partnerships between domestic banks and third parties, including FinTech companies. The uncertainty in this area had caused confusion because the identity of the lender determines which state the interest rate limits apply to a loan: if a national bank is the lender, then the interest rate limits of the home state of the bank apply. Under the rule, a national bank would have been considered the lender of a loan if, on the inception date, it (1) was named as the lender in the loan agreement or (2) funded the loan. If a bank was named as the lender in the loan agreement and another bank funded the loan, the rule clarified that the bank named as the lender in the loan agreement was the lender.

The repeal of the true lender rule marks a return to a world of uncertainty caused by the multifactorial and factual tests that some courts have applied to determine which entity is granting a loan. In enacting the True Lender Rule, the OCC recognized that this uncertainty “may discourage banks from entering into lending partnerships. [with third parties], which in turn can limit competition, restrict access to affordable credit, and constrain the innovation that can result from these relationships. The real lender rule was to provide a consistent and predictable standard to address this uncertainty. Under the CRA, the OCC is prohibited from issuing a substantially similar rule, unless Congress authorizes the agency to do so in a subsequent statute.

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