The U.S. President Joseph R. Biden Jr. signed into law a Bill (S.J.Res. 15) that nullifies the “true lender rule,” which OCC had issued in October 2020. The rule determined when a national bank or a federal savings association makes a loan and is the “true lender,” including in the context of a partnership between a bank and a third party. The Acting Comptroller of the Currency, Michael J. Hsu, has issued a statement on the U.S. House of Representative’s vote to overturn the true lender rule of OCC. In the statement, Mr. Hsu emphasized that, going forward, OCC will consider policy options, consistent with the Congressional Review Act, that protect consumers while expanding financial inclusion.
The true lender rule required that a national bank or a federal saving association must, as of the date of origination of the loan, be named as the lender in the loan agreement or fund the loan for it to be considered a lender. The rule also specified that if, as of the date of origination, one bank is named as the lender in the loan agreement for a loan and another bank funds that loan, the bank that is named as the lender in the loan agreement makes the loan. The rule was controversial, as it was believed to have allowed "predatory lenders to evade State usury laws and target consumers with high interest rate loans of 150% or higher through sham partnerships with banks." The OCC's rule was claimed to have undone centuries of case law that ensured that nonbank financial institutions were subject to State interest rate caps when they partnered with banks, so long as they held the primary economic interest in a consumer loan. The OCC rule allowed nonbanks to launder their loans through OCC-chartered banks, as long as the bank is listed on the loan origination documents, effectively allowing nonbanks to ignore State usury laws. The rule was thought of by some as a backdoor way for nonbanks to charge triple-digit interest rates on loans at the expense of consumers in States where voters turned out to pass interest rate cap laws, with some also calling it the ``fake lender'' rule.
- News Release on Signing of Bill
- Signed Bill (S.J.Res.15)
- Congressional Record (PDF)
- Statement of Acting Comptroller
- True Lender Rule, October 2020
Keywords: Americas, US, Banking, True Lender Rule, Credit Risk, Loan Origination, White House, US Government, Lending, OCC
Previous ArticleSBV Amends Circular on Regulations on Ratings of Credit Funds
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.