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Financial Services Law Insights and Observations

FDIC follows OCC, adopts final rule addressing Madden

Agency Rule-Making & Guidance FDIC OCC Madden Interest Rate State Issues

Agency Rule-Making & Guidance

On June 25, the FDIC issued a final rule clarifying that whether interest on a loan is permissible under the Federal Deposit Insurance Act is determined at the time the loan is made and is not affected by the sale, assignment, or other transfer of the loan. The FDIC’s final rule effectively reverses the Second Circuit’s 2015 Madden v. Midland Funding decision as applicable to state banks and follows the OCC’s issuance of a similar rule earlier this month for national charters. Specifically, the FDIC’s final rule states that, “[w]hether interest on a loan is permissible under section 27 of the Federal Deposit Insurance Act is determined as of the date the loan was made. . . [and] shall not be affected by a change in State law, a change in the relevant commercial paper rate after the loan was made, or the sale, assignment, or other transfer of the loan, in whole or in part.” Additionally, the FDIC rule mirrors the OCC in specifying that the rule does “not address the question of whether a State bank. . .is a real party in interest with respect to a loan or has an economic interest in the loan under state law, e.g. which entity is the ‘true lender.’” Details on the effect of these rules can be found in Buckley’s Special Alert on the OCC’s issuance.

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