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Financial Services Law Insights and Observations

States seek to invalidate OCC true lender rule

Courts State Attorney General OCC True Lender Valid When Made State Issues


On January 5, the New York attorney general, along with the attorneys general from six other states and the District of Columbia filed a complaint against the OCC in the U.S. District Court for the Southern District of New York challenging the OCC’s “true lender” final rule. As previously covered by InfoBytes, in October 2020, the OCC issued a final rule addressing when a national bank or federal savings association 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 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. The complaint argues, among other things, that the OCC exceeded its statutory authority, and “acted in a manner contrary to centuries of case law [and] the OCC’s own prior interpretation of the law.” The attorneys general reject the OCC’s contention that the final rule is intended to address “‘ambiguity’ in provisions of three federal banking statutes that generally authorize National Banks to make loans,” and instead argue that the rule seeks to preempt state usury law and “infringe on the States’ historical police powers and facilitate predatory lending.” The complaint seeks a declaratory judgment that the OCC violated the Administrative Procedures Act and requests the court set aside the final rule as unlawful. 

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