July 30, 2021

Volume XI, Number 211

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Marketplace Lending Update #10: OCC’s True Lender Rule Is Repealed

On June 30, 2021, President Biden signed a joint resolution of Congress under the Congressional Review Act (“CRA”) to disapprove the OCC’s True Lender Rule. As a result, the True Lender Rule is now repealed.

The True Lender Rule was published in the Federal Register on October 30, 2020. According to the OCC, the Rule sought to clarify marketplace confusion that arises when a national bank partners with a non-bank lender, such as a marketplace lender.1  Determining which entity is making the loan (or is the “true lender”) determines which laws apply to the loans.  The True Lender Rule provided that a national bank is the true lender if, as of the date of origination, (1) the national bank is named as the lender in the loan agreement for a loan and another bank funds that loan, or (2) the national bank itself funds the loan.2

As Cadwalader has previously reported,3 the Congressional Review Act gives Congress expedited procedures for agency rulemaking review.  With that, Congress is empowered to pass resolutions of disapproval, which, when signed by the President, prevent an agency’s rule from either taking effect or continuing.  In essence, when the President signs a joint resolution, it is as if the rule had never taken effect.4  Moreover, the rescinded rule “may not be reissued in substantially the same form, and a new rule that is substantially the same as such a rule may not be issued, unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.”5

The House passed its joint resolution on June 24, 2021 and the Senate passed its resolution on May 11, 2021.  President Biden signed the resolution on June 30, 2021, thereby terminating the rule’s effectiveness.  Now, the patchwork of judicial decisions released before the OCC’s issuance of the Rule will control the true lender determination and decide what law applies. 

As we have previously advised, we believe the repeal of the True Lender Rule is largely symbolic and that risks for marketplace loans remain basically the same.6  With that, the best ways to mitigate risks associated with challenges to bank-origination model loans include: (1) ensuring loan agreements have strong arbitration clauses reflecting contractual agreement to arbitrate any claims and not allow claims to be arbitrated on a class action basis,7 and (2), limiting the interest rates to below the threshold typically targeted by the CFPB and the state AGs (usually, 36%).

 

 For a discussion of the bank origination model, see our Clients & Friends Memo, Marketplace Lending Update: Who’s My Lender? (Mar. 14, 2018).

 2 C.F.R. 7.1031(b).

 For more information on the Congressional Review Act, see Clients & Friends Memo, Marketplace Lending Update #9: To Thine Own Self Be True? Not Necessarily (May 21, 2021).

 5 U.S.C. § 801(f).

  5 U.S.C. § 801(b)(2).

6   See supra note 3. 

7  See American Express Co. et al v. Italian Colors Restaurant et al., 570 U.S. 228 (2013) (holding that the Federal Arbitration Act does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery).

© Copyright 2021 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume XI, Number 197
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Rachel Rodman Corporate Litigation Attorney Cadwalader Washington, DC
Partner

Rachel Rodman is an experienced litigator who focuses her practice on defending banks, specialty finance companies and other financial services institutions in investigations and enforcement actions by federal and state agencies, supervisory actions and consumer protection civil litigation. 

Rachel has significant experience in government investigations and litigation relating to consumer financial products and services. She regularly represents depository institutions, finance companies and other market participants in enforcement and supervisory actions by federal banking...

202-862-2210
Daniel Meade Bank Regulation Attorney Cadwalader Washington DC
Partner

Daniel Meade is a partner in Cadwalader’s bank regulatory practice in Washington, DC. He has substantial experience in sophisticated transactional bank regulatory issues, such as bank M&A, the Volcker Rule, bank powers, affiliate transactions, Basel III capital, tying, AML, sanctions, and Bank Holding Company Act issues.  

Dan most recently served as Senior Vice President and Managing Counsel at Wells Fargo, where he led a team providing advice to Wells Fargo’s Regulatory Relations and Government Relations and Public Policy functions....

202-862-2294
Scott Cammarn Financial Law Attorney Cadwalader Law Firm
Partner

Scott Cammarn has 28 years of experience in the banking industry and his legal career has spanned all areas of banking compliance and finance law. His practice focuses on regulatory matters, mergers & acquisitions, legislation, transactions, and training. He represents a number of national and international financial institutions and has practiced before the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, and numerous state banking departments.

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704-348-5363
Jopseph Beach, Cadwalader Law Firm, Investment Banking and Assett Management Attorney
Partner

Joseph Beach represents investment banks, asset managers, large commercial banks and commercial paper conduits in a broad range of securitization and structured finance transactions, focusing primarily on CLOs and structured loans.

Joseph's clients include a broad range of investment banks and asset managers in CLO transactions. He has extensive experience with both broadly syndicated and middle market CLOs utilizing cash flow and static pool structures. He also represents multiple commercial banks and asset-backed commercial paper conduits in...

704-348-5171
Chris Gavin, New York, Partner, Cadwalader, Structured Finance Attorney, Fintech, Mortgage Banking, Whole Loan Trading, Residential Mortgage-Backed Securities Securitization, Asset Based Finance Structured Products
Partner

Widely recognized as an active and innovative attorney in structured finance, Chris Gavin represents issuers, borrowers, sellers, buyers, lenders, official lenders, hedge funds, private equity funds and other investors in U.S. and international structured finance transactions.

The footprint and complexity of his financings span North America, South America, Europe, Australia and Africa, and individual securitizations reaching more than $20 billion. Chris represents and advises clients in a range of cross-border transactions and structured solutions involving:

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