Comment Letter In Opposition to the OCC's Proposed "True Lender" Rule
23 Pages Posted: 17 Aug 2020
Date Written: August 11, 2020
This comment letter opposes the adoption of a proposed rule published by the Office of
the Comptroller of the Currency (“OCC”) on July 22, 2020. 85 Fed. Reg. 44223 (2020). The
proposed rule would determine whether a national bank or federal savings association “makes a
loan and is the ‘true lender’ in the context of a partnership between a bank and a third party, such
as a marketplace lender.” Id. The proposed rule – to be codified at 12 C.F.R. 7.1031 – would
provide that a national bank or federal savings association is deemed to “make” a loan if the
institution, “as of the date of origination: (a) Is named as the lender in the loan agreement; or (b)
Funds the loan.” Id. at 44228.
The proposed rule is designed to operate in combination with the OCC’s recently-adopted
“Madden-fix rule.” 85 Fed. Reg. 33530 (2020). Under the Madden-fix rule, a loan that is
“made” by a national bank or federal savings association will retain its preemptive immunity
from state usury laws under 12 U.S.C. 85 or 1463(g) if the loan is “subsequently sold, assigned,
or otherwise transferred” to a nonbank.
The proposed rule – in tandem with the Madden-fix rule – would allow a national bank or
federal savings association to form “partnerships” with nonbank lenders, including payday
lenders and auto title lenders. The two rules would allow a national bank or federal savings
association to be treated as the “lender” under 12 U.S.C. 85 or 1463(g) for loans that are
originated in its name or that it funds, even if it sells those loans to a nonbank “partner” one day
after the loans are originated. 85 Fed. Reg. at 44225. The proposed rule would preempt state
“true lender” laws, under which courts apply a substance-over-form analysis and consider
several fact-specific issues in determining whether a loan is “made” by a bank as opposed to its
The two rules would permit a nonbank “partner” of a national bank or federal savings
association to claim preemptive immunity from state usury laws under 12 U.S.C. 85 or 1463(g).
The national bank or federal thrift could act as a mere conduit by quickly transferring loans to
the nonbank “partner,” which could assume all of the economic risks and control the terms and
enforcement of the loans. Such “partnerships” would amount to “rent-a-charter” schemes, which
the OCC has barred national banks from entering since the early 2000s.
In addition, the proposed rule evidently seeks to preempt a wide range of other state laws
– including state licensing, examination, and consumer protection laws – that would otherwise
apply to nonbank lenders that establish “partnerships” with national banks or federal savings
associations. Thus, the proposed rule’s scope of preemption is not limited to state usury laws
and potentially affects a far broader range of state laws.
This comment letter argues that the OCC’s proposed rule is unlawful, invalid, and
contrary to the public interest for the following reasons:
(1) The proposed rule does not comply with 12 U.S.C. 25b, which governs the OCC’s
authority to issue rules that seek to preempt state consumer financial laws.
(2) The proposed rule unlawfully seeks to override state “true lender” laws without
congressional authorization and in contravention of applicable court decisions.
(3) The proposed rule is contrary to the public interest because it would allow national
banks and federal savings associations to establish “rent-a-charter” schemes with nonbank
lenders, thereby encouraging predatory lending and other abusive practices that would inflict
very serious injuries on consumers and small businesses.
(4) The proposed rule violates the Administrative Procedure Act because the OCC has
not provided the required public notice of its intention to reverse the agency’s existing policy
banning “rent-a-charter” schemes, as well as the OCC’s factual, legal, and policy reasons for
reversing that policy. Accordingly, the OCC may not adopt the proposed rule unless the agency
first provides to the public: (A) notice of the OCC’s intention to reverse its existing policy
banning “rent-a-charter” schemes and an explanation of the agency’s reasons for doing so, and
(B) a reasonable opportunity to submit comments on the OCC’s proposal to reverse that policy
and its stated reasons for doing so.
This comment letter contends that the OCC should withdraw the proposed rule and
should not issue any other rule or order that would (1) override state “true lender” laws, or (2)
allow national banks to establish “rent-a-charter” schemes with nonbank lenders.
Keywords: Dodd-Frank Act, federal savings associations, national banks, Office of the Comptroller of the Currency, preemption, state consumer financial laws, state usury laws, true lender doctrine
JEL Classification: G20, G21, G23, G28, G50, G51, K20, K23, N20
Suggested Citation: Suggested Citation