September 22, 2021

Volume XI, Number 265

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House Votes to Repeal OCC True Lender Rule

On June 24, the U.S. House of Representatives passed S.J. Res. 15 by a vote of 218-208 to repeal the Office of the Comptroller of the Currency’s (OCC) “True Lender” rule under the Congressional Review Act (CRA).  The OCC published the rule last year to establish a “simple, bright-line test” to determine when a national bank or federal savings association is the true lender. Under the rule, a bank is the true lender and makes a loan if, as of the date of origination, it (i) is named as the lender in the loan agreement or (ii) funds the loan.  Further, the final rule amended the initial proposed rule and added that if, as of the date of origination, one bank is named as the lender in the loan agreement and another bank funds that loan, the bank that is named as the lender in the loan agreement is deemed to have made the loan.  The U.S. Senate passed S.J. Res. 15 last month by vote of 52-47 to invoke the CRA and provide for congressional disapproval and invalidation of the final rule. The repeal now heads to President Biden who is expected to sign it.

Putting it into Practice:  Congress’ decision to overturn the rule stems from the criticism by consumer advocates and others that the rule would lead to allegedly unfair “rent-a-bank” schemes, as well as predatory and usurious lending tactics.  For FinTechs and other non-bank lending companies, repeal means continued uncertainty concerning which state laws apply to a lending program developed in coordination with a partner bank.  As a result, both banks and non-banks in lending partnerships will likely continue for the foreseeable future to be subject to a patchwork of state law requirements, compliance measures, and other regulations, including state usury caps.  Notwithstanding the repeal, bank partnerships remain a popular structure for well-established and new FinTechs, covering a wide range of credit, banking, and payment services that consumers have increasingly gravitated to in lieu of traditional brick-and-mortar offerings.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 179
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
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