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Financial Services Law Insights and Observations

OCC finalizes true lender rule

Agency Rule-Making & Guidance OCC True Lender Valid When Made

Agency Rule-Making & Guidance

On October 27, the OCC issued a final rule (see also Bulletin 2020-92) addressing when a national bank or federal savings association (bank) is the “true lender” in the context of a partnership between a bank and a third party to provide certainty about key aspects of the legal framework that applies. The final rule generally adopts the test proposed by the agency in July (see InfoBytes coverage here). Specifically, the final rule amends 12 CFR Part 7 to state that a bank makes a loan when it, as of the date of origination, (i) is named as the lender in the loan agreement or (ii) funds the loan. Additionally, the final rule clarifies that if “one bank is named as the lender in the loan agreement and another bank funds the loan, the bank that is named as the lender in the loan agreement makes the loan.” Lastly, the OCC emphasizes that compliance obligations stay with the “true lender” of the loan and “if a bank fails to satisfy its compliance obligations, the OCC will not hesitate to use its enforcement authority consistent with its longstanding policy and practice.”

The rule is effective 60 days after publication in the Federal Register.

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