September 18, 2020

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September 15, 2020

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OCC Proposal Would Bring Certainty to the Identity of the “True Lender”

Markets like certainty.  On July 20, 2020, the Office of the Comptroller of the Currency (the “OCC”) proposed a new rule for national banks and federal savings associations that would solve the “true lender” question and help bring certainty to financial markets.  Under the proposed rule, a bank will be deemed the “true lender” in a bank partnership model if it is either (i) the named lender in the underlying loan agreement or (ii) the party that funds the loan.

As of late, state regulatory agencies across the U.S. have brought “true lender” actions seeking to invalidate various “bank partnership models” used by both banks and non-bank lenders to generate consumer and small dollar business loans.  In reviewing these challenges, courts have struggled with whether the “true lender” in these partnerships is the bank or the non-bank lender, with some courts looking at multiple factors in reaching a decision.  The distinction is important inasmuch as it determines whether the National Bank Act applies, or whether the loan is to be governed entirely by state law.  The proposed rule is applicable only to national banks and federal savings associations and would resolve the question by establishing clear rules based upon whether the bank is (i) the named lender or (ii) the party funding the loan.

Since the rule is being proposed by the OCC, it is of course not applicable to state-chartered banks and, consequently, fails to address the uncertainty in state-chartered bank partnership models.

A copy of the proposed rule can be found by clicking here.

© 2020 Vedder PriceNational Law Review, Volume X, Number 203

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About this Author

James M. Kane, Vedder Price Law Firm, Finance Attorney
Shareholder

James M. Kane joined Vedder Price in 1993 as a shareholder and is a member of the firm’s Financial Institutions Group. From 1981 until joining Vedder Price, he was the district counsel in Chicago for the Office of the Comptroller of the Currency. As the chief legal officer for the Six-State Central District (Illinois, Wisconsin, Michigan, Ohio, Indiana and Kentucky), he was responsible for providing legal and policy advice to the Deputy Comptroller and the 500 examiners of the Central District. In this capacity, he authored opinions on a wide variety of banking law issues and represented...

312-609-7533
James W. Morrissey, Vedder Price Law Firm, Finance Attorney
Shareholder

James W. Morrissey is a shareholder and a member of the firm’s Financial Institutions Group and Finance and Transactions Group.

 

312-609-7717
Daniel C. McKay, Vedder Price Law Firm, Financial Attorney
Shareholder

Daniel C. McKay, II concentrates his practice in the representation of financial institutions and corporations and their officers, directors and shareholders in connection with mergers and acquisitions, securities offerings, corporate finance, corporate governance and regulatory and compliance matters.  He has been involved in more than 150 bank or thrift  mergers and acquisitions/securities offerings, with aggregate consideration of these deals totaling over $50 billion.

312-609-7762
Jennifer King, corporate, capital markets, securities, attorney, Vedder Price,
Shareholder

Jennifer Durham King joined Vedder Price’s Chicago office in 1997 as a member of the firm’s Corporate and Capital Markets practice areas. She concentrates her practice in capital markets and corporate securities transactions, with a specific focus on financial institutions. Ms. King regularly represents issuers and underwriters in a broad range of capital markets transactions, including public and private debt and equity offerings, trust preferred offerings, mergers and acquisitions, and capital planning and formation.

312-609-7835
Juan M. Arciniegas, Vedder Price, derivatives, structured products and futures
Shareholder

Juan M. Arciniegas is a Shareholder at Vedder Price and a member of the Investment Services group in the firm’s Chicago office.

Mr. Arciniegas works primarily as a derivatives lawyer and has significant experience in the market for over-the-counter (OTC) derivatives, structured products and futures. He advises on every stage throughout the life cycle of a derivatives transaction, from conducting pre-trade regulatory due diligence to negotiating transactional documentation and advising on post-trade reporting and recordkeeping obligations. This...

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