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Effective Date: Loan Purchase Activities: Legal Lending Limit Guidance

OCC Bulletin 2023-27|August 8, 2023

Loan Purchase Activities: Legal Lending Limit Guidance

Summary

The Office of the Comptroller of the Currency (OCC) is issuing this bulletin to provide banks1 with guidance regarding the applicability of the legal lending limit (LLL) to purchased loans.

Note for Community Banks

This bulletin applies to community banks’ purchases of loans.

Highlights

This bulletin

  • provides background information on loan purchase activities and the LLL.
  • provides guidance on the applicability of the LLL to purchased loans and types of recourse arrangements.

Background

Loan purchase activities are long-standing banking practices that serve the legitimate business needs of the buying and selling institutions and the public interest. The extensive network of loan-broker channels and increased involvement of nonbank lenders have resulted in growth in the availability of loans for purchase.2

Unless an exception applies, all loans and extensions of credit made by banks are subject to the LLL, which provides limitations on the total amount of loans and extensions of credit to any one borrower.3 Whether a loan that a bank purchases is attributable to the seller under the LLL regulation depends on specific facts and circumstances. Consequently, bank management would typically consider more information than it would for in-house originations when determining compliance with the LLL regulation for purchased loans.

Guidance

Aggregate exposures attributable to a single seller must be within the bank’s LLL. Loans are attributable to a seller under 12 CFR 32.2(q)(1)(iii) if the bank has direct or indirect recourse to the seller. Direct or indirect recourse can be explicit or implied. Explicit recourse is generally provided under contractual arrangement or other written agreement between the bank and the seller. Implied recourse is established through the bank’s course of dealing4 or conduct with a seller even if the contract or written agreement with the provider does not contain explicit recourse. The following are examples of explicit and implied recourse scenarios:

  • Explicit recourse: Examples include a requirement or contractual obligation to substitute or repurchase defaulted loans or refill a reserve account, even if no substitutions, repurchases, or replenishments of the reserve account have occurred to date.
  • Implied recourse: Examples include when the seller has routinely substituted or repurchased loans or refilled or replenished a reserve account even when the contract does not require those actions.

If the bank does not have explicit or implied recourse to the seller, the loans are generally not attributable to the seller under 12 CFR 32.2(q)(1)(iii). In such cases, the purchased loans would generally be attributable under the LLL regulation to only the named borrowers on the loans, unless the direct benefit or common enterprise tests under 12 CFR 32.5 are met or other provisions under the LLL regulation warrant attribution to another party.5

Further Information

Please contact your OCC supervisory office.

  • August 8, 2023
  • Time: All Day
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