Congress Tells OCC “Nope” On True Lender Rule

In October, the OCC brought clarity to the relationships that many fintech companies enjoy with banks.

So long as a national bank is named as the lender on the loan agreement on the date of origination or so long as it funds the loan, then the bank is considered the true lender, the OCC decided. It issued it as a rule that was published in the Federal Register last year.

The brief proclamation was viewed as necessary in light of lawsuits filed against fintech companies that have challenged who the true lender was on a loan.

National banks are generally exempt from state interest rate caps and licensing requirements. Fintech lenders, therefore, partner up with banks in such a way that the banks themselves actually make the loans so that those same exemptions carry over. The long-used practice has drawn litigation as well as outrage from certain corners of the economic and political spectrum. The OCC rule issued during the Trump era, for example, was not unanimously applauded.

Last week, Congress took the unusual step of nullifying the OCC’s rule.

Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That Congress disapproves the rule submitted by the Office of the Comptroller of Currency relating to “National Banks and Federal Savings Associations as Lenders” (85 Fed. Reg. 68742 (October 30, 2020)), and such rule shall have no force or effect.

Short and succinct.

The invalidation of the OCC rule does not mean that banks cannot collaborate with fintechs or third parties in such a way as before, but rather that the certainty of what’s acceptable and what isn’t will be relegated to further debate for years to come.

Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.