Congress has enacted and President Joseph Biden has signed a joint resolution of disapproval under the Congressional Review Act (CRA) of the Office of the Comptroller of the Currency’s (OCC’s) “true lender” rule, which, as we previously discussed, had provided that a national bank is as a matter of law the lender on any loan for which it is the named lender or for which it provides the loan funding.
As we explained when the resolution was introduced, once enacted, the true lender rule will be voided retroactively. Under the CRA, the OCC will also be barred from issuing any regulation in “substantially the same form” absent express congressional authorization. The revocation does not set a different standard for who is the true lender on a loan; it simply eliminates the bright-line standard the OCC had adopted. Thus, invalidation of the true lender rule will revert the law to the various competing pre-rule, court-created standards governing when a bank is acting as the “true lender”—many of which were inconsistent.
In some cases, courts concluded, similar to the OCC, that the form of the transaction alone resolves this issue. In other cases, courts applied fact-intensive balancing tests in which they considered a multitude of factors, with no dispositive factor and no predictable standard. Still other courts applied a “predominant economic interest” test in conducting this analysis but did not necessarily consider all of the same factors or give each factor the same weight from case to case. In jurisdictions where courts have applied balancing tests—or where there is no case law—knowing which legal framework sets the parameters of usury, fees, and licensing as of the date of loan origination can be difficult. The invalidation of the rule will mean that there is no uniform standard to determine if a loan is, in fact, made by a bank rather than its nonbank partner.
As we counseled previously, banks, fintech firms, and nonbank lenders and servicers operating under a bank partnership model should continue to structure their programs in a manner that is consistent with applicable case law in the jurisdictions where the loans are being made, and nonbank lenders should stay abreast of related state law requirements, including loan brokering and debt collector licensing requirements.
The repeal of the true lender rule does not affect the separate “Madden fix” rules by the OCC and FDIC, which have not been subject to a CRA disapproval effort. Those rules have instead been subject to litigation challenges initiated by several state attorneys general under the Administrative Procedure Act.