OCC Believes It’s Time To Fix Madden Issue Once And For All

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OCC SealIf a bank makes a legal loan to a consumer and then later sells the debt to a third party, the terms of the loan are still legal right?

“Yes” should be the obvious answer, but in 2015 a federal appeals court said “no.” The case was Madden v. Midland Funding LLC, which started as a credit card debt owed by a consumer to Bank of America at 27% interest and ended as an allegedly illegal loan once the debt was sold to Midland Funding.

The ruling, which deBanked has covered extensively, shook the consumer and business loan markets in New York, Connecticut, and Vermont with its jurisdictional reach. Midland Funding appealed the ruling to the United States Supreme Court but the Court declined to hear the case.

Congress attempted to bring clarity to the lawfulness of the practice with a bill called the Protecting Consumers’ Access to Credit Act of 2017 but failed when the approved House bill never even came up for a vote in the Senate.

On Monday, the Office of the Comptroller of the Currency (OCC) proposed a rule to clarify the “Valid When Made” Doctrine that had been pierced in Madden. “This proposal will address confusion about the effect of a transfer on a loan’s valid interest rate, including confusion resulting from a recent decision from the U.S. Court of Appeals for the Second Circuit (Madden v. Midland Funding, LLC),” OCC wrote in a statement.

A 60-day public comment period will be open once the proposal is published in the Federal Register. To find out how to comment on the rule, click here.

Last modified: November 18, 2019
Sean Murray


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