Biden signs joint resolution declaring OCC’s “true lender” rule invalid
By Glenn Morrical
In May 2021, we reported that the U.S. Senate had passed a joint resolution declaring the OCC’s “true lender” rule invalid. That resolution has since been passed by the House and, on June 30, 2021, was signed by President Biden.
The short-lived OCC “true lender” rule applied to loans made by national banks and federally chartered savings associations and was a companion rule to the “valid-when-made” rule. The “valid-when-made” rule provides that a loan made by one of those institutions at an interest rate that is legal for that institution to charge cannot be rendered unlawful by being sold to another person who is not legally allowed to charge that same rate. The “true lender” rule was the OCC’s attempt to provide a simple, objective rule that a federal institution is the true lender for this purpose if the documentation indicates it is the lender. The “valid-when-made” rule has been opposed and legally challenged by those who think it provides too much opportunity for abuse by predatory lenders entering into arrangements with these federal institutions. The “true lender” rule made it easier for a predatory lender to circumvent rate regulations by having a federal institution be the initial lender of record.
The joint resolution does not provide any alternative solution to alleviate the concerns of the banking industry or consumer protection advocates, both of which are troubled by the uncertainty that existed before the adoption of the “valid-when-made” rule and the related “true lender” rule. “True lender” determinations will continue to be made by various courts in “facts-and-circumstances” mode. Any future clarity will require either different rule-making by the OCC or enactment of legislation by Congress.
We have previously reported on these rules and related matters: