The OCC Should Withdraw Its Proposed “True Lender” Rule

The Office of the Comptroller of the Currency (OCC) recently issued a proposed “true lender” rule.[1] The proposed rule would establish a two-part test for determining whether a national bank or federal savings association “makes a loan and is the ‘true lender’ in the context of a partnership between a bank and a third party, such as a marketplace lender.” Under the proposed rule, a national bank or federal savings association would be deemed to “make” a loan if the institution, “as of the date of origination: (a) Is named as the lender in the loan agreement; or (b) Funds the loan.”[2]

The proposed “true lender” rule is designed to operate in combination with the OCC’s recently adopted “Madden-fix rule.” Under the Madden-fix rule, a loan that is “made” by a national bank or federal savings association will retain its preemptive immunity from state usury laws under 12 U.S.C. § 85 or § 1463(g) if the loan is “subsequently sold, assigned, or otherwise transferred” to a nonbank.[3] The OCC’s proposed “true lender” rule – in tandem with the Madden-fix rule – would allow a national bank or federal savings association to form “partnerships” with nonbank lenders, including payday lenders and auto title lenders. The two rules would allow a national bank or federal savings association to be treated as the “lender” under 12 U.S.C. § 85 or § 1463(g) for loans that are originated in its name or that it funds, even if the bank sells those loans to its nonbank “partner” one day after the loans are originated.[4]

The proposed “true lender” rule would preempt state “true lender” laws, under which courts apply a substance-over-form analysis and consider several fact specific issues in determining whether a loan is “made” by a bank as opposed to its nonbank “partner.” If a  national bank or federal savings association qualified as the “true lender” under the proposed rule’s two-part test, the proposed rule would enable the bank’s nonbank “partner” to claim preemptive immunity from state usury laws. The proposed rule would allow a national bank or federal thrift to act as a mere conduit by quickly transferring loans to its nonbank “partner,” which could assume all of the economic risks and control the terms and enforcement of the loans. Such “partnerships” would amount to “rent-a-charter” schemes, which the OCC has barred national banks from entering since the early 2000s.

The proposed rule also seeks to preempt a wide range of other state laws, including state licensing, examination, and consumer protection laws, that would otherwise apply to nonbank lenders that establish “partnerships” with national banks or federal savings associations.  Thus, the proposed rule’s scope of preemption is not limited to state usury laws and potentially affects a much broader range of state laws.

On August 11, 2020, I filed a comment letter opposing the OCC’s proposed rule. My letter argues that the proposed rule is unlawful, invalid, and contrary to the public interest for the following reasons:

  1. The proposed rule does not comply with 12 U.S.C. § 25b, which governs the OCC’s authority to issue rules that seek to preempt state consumer financial laws.
  2. The proposed rule unlawfully seeks to override state “true lender” laws without congressional authorization and in contravention of applicable court decisions. The proposed rule ignores the substance-over-form analysis and the multifactor tests that have been applied in those decisions.
  3. The proposed rule is contrary to the public interest because it would allow national banks and federal savings associations to establish “rent-a-charter” schemes with payday lenders and other predatory nonbank lenders, thereby encouraging abusive practices that would inflict very serious injuries on consumers and small businesses.
  4. The proposed rule violates the Administrative Procedure Act because the OCC has not provided the required public notice of its intention to reverse the agency’s existing policy banning “rent-a-charter” schemes, as well as the OCC’s factual, legal, and policy reasons for reversing that policy. Accordingly, the OCC may not adopt the proposed rule unless the agency first provides to the public: (A) notice of the OCC’s intention to reverse its existing policy banning “rent-a-charter” schemes and an explanation of the agency’s reasons for doing so, and (B) a reasonable opportunity to submit comments on the OCC’s proposal to reverse that policy and its stated reasons for doing so.

My comment letter contends that the OCC should withdraw the proposed rule and should not issue any other rule or order that would override state “true lender” laws or allow national banks to establish “rent-a-charter” schemes with nonbank lenders.


Art Wilmarth is a Professor Emeritus of Law at George Washington University Law School.

This post is adapted from his recent comment letter opposing the adoption of the OCC’s proposed “true lender” rule.

[1] 85 Fed. Reg. 44223 (July 22, 2020).

[2] Id. at 44223, 44228.

[3] 85 Fed. Reg. 33530-33, 33536 (June 2, 2020).

[4] See 85 Fed. Reg. at 44225 (stating that “the determination of which entity made the loan under the above standards would be complete as of the date the loan is originated and would not change, even if the bank were to subsequently transfer the loan”) (emphasis added).

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