US President Signs Bill to Repeal True Lender Rule of OCC
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.
Related Links
- 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 Article
SBV Amends Circular on Regulations on Ratings of Credit FundsRelated Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
