The U.S. Senate Passes Resolution to Repeal the OCC’s “True Lender” Rule

On May 11, 2021, the Senate passed a resolution to repeal the Office of the Comptroller of the Currency’s (“OCC”) “True Lender” Rule (the “Rule”), using the Congressional Review Act, a measure allowing Congress to disapprove of agency actions and nullify recently adopted administrative rules. The resolution must now head to the House of Representatives, where, if passed, it will go to the President for enactment. If enacted, the Rule would be nullified, and the OCC would be prohibited from issuing or adopting the Rule again “in substantially the same form.” 

The “True Lender” Rule, finalized by the OCC on October 27, 2020, was designed to identify which party in a partnership between a bank and a third party is deemed the “true lender.” The Rule specifies that a bank makes a loan and is the “true lender” if, as of the date of origination, it (1) is named as the lender in the loan agreement or (2) funds the loan. The Rule also clarifies that as the true lender of a loan, the bank retains the compliance obligations associated with the origination of that loan, thus negating concern regarding harmful “rent-a-charter” arrangements.

In its Federal Register notice, the OCC emphasized that the Rule would help foster Banks’ lending relationships with third parties, facilitating consumer access to affordable credit. The OCC stated that increasing legal uncertainty regarding such relationships may discourage banks and third parties from partnering, limit competition, and chill the innovation that results from these partnerships; this Rule is meant to resolve this uncertainty. Critics to this Rule in states, Congress, and elsewhere have said that this Rule would instead facilitate termed “rent-a-charter” or “rent-a-bank” arrangements and potentially allow lenders to avoid state consumer protection requirements, including usury caps. 

President Biden has indicated his support for the repeal and will likely enact the resolution following an expected vote to also repeal the Rule in the House. The financial services industry, particularly non-bank lending companies in bank partnership arrangements, should pay special attention, as upon repeal of the rule the industry may be subject to a patchwork of state law requirements, compliance measures, and other regulations, including state usury caps.

You may the Rule in its entirety and the Federal Register notice using the following link: https://www.occ.gov/news-issuances/federal-register/2020/85fr68742.pdf.

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