On June 1, 2020, the Office of the Comptroller of the Currency (OCC) issued a final rule protecting national bank assignees from claims of usury. The final rule also protects assignees from federal savings associations.
The final rule is a response to problems created by the United States Court of Appeals’ 2015 decision in Madden v. Midland Funding, LLC, 786 F.3d 246 (2nd Cir. 2015). In that case, the court ruled that a non-bank assignee of a credit-card loan made by a national bank could not continue to charge interest at the rate authorized to the national bank. The Court ruled that the assignee could only charge interest at the rate otherwise allowed to it by applicable state law. This decision, which was roundly criticized by banks and lenders, called into question longstanding usury “valid-when-made” and “stand-in-the shoes” doctrines relied upon by loan originators, securitizers and investors.
The final rule codifies in federal regulations the OCC’s long-held interpretation of federal law that assignees of non-usurious loans originated by national banks and federal savings associations step into the shoes of the original lenders and are not subject to usury challenges even if the assignee is not a national bank or savings association and could not charge interest at the rate in the assigned debt.
A major objection some commentators raised to the final rule was that it would undermine state usury limits by enabling so-called “predatory lenders” to “rent a charter” by encouraging loans made in the name of a bank and then immediately assigned to the non-bank lender. The OCC’s release notes that nothing in the regulation limits the OCC’s ability to address improper use of the new regulation.
The OCC’s final rule is codified for national banks at 12 CFR. §7.4001(e) and for savings associations as 12 CFR §160.110(d).
On December 6, 2019, the FDIC’s issued its own proposed regulation that would provide equivalent protection to federally insured state banks (84 Fed. Reg. 66845), but a final rule has not yet been issued.
By Thurman Senn
Thurman Senn’s practice concentrates on banking and finance law, bankruptcy, foreclosure, commercial litigation and arbitration. As a former vice president and general counsel for a consumer mortgage lender, he also provides corporate counsel services for businesses.