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 use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards
The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.
The Basel Committee on Banking Supervision (BCBS) launched consultation on a Pillar 3 disclosure framework for climate-related financial risks, with the comment period ending on February 29, 2024.
The U.S. President Joe Biden signed an Executive Order, dated October 30, 2023, to ensure safe, secure, and trustworthy development and use of artificial intelligence (AI).
The Monetary Authority of Singapore (MAS) launched an integrated digital platform, Gprnt, also known as “Greenprint.”
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
The Network for Greening the Financial System (NGFS) published its latest set of long-term climate macro-financial scenarios (Phase IV) for assessing forward-looking climate risks.