Congress recently exercised its power under the Congressional Review Act (“CRA”) to retroactively void the rule submitted by the Office of the Comptroller of Currency relating to “National Banks and Federal Savings Associations as Lenders,” colloquially known as the “true lender” rule. Congressional Democrats spearheaded the repeal with a resolution under the CRA, arguing that the rule helped payday lenders issue predatory loans. The legislation passed in the Senate in May and the House last month on largely party-line votes. President Biden signed this bill into law on June 30, 2021.
Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Office of the Comptroller of Currency relating to “National Banks and Federal Savings Associations as Lenders”.
Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That Congress disapproves the rule submitted by the Office of the Comptroller of Currency relating to “National Banks and Federal Savings Associations as Lenders” (85 Fed. Reg. 68742 (October 30, 2020)), and such rule shall have no force or effect.
S.J.Res.15 — 117th Congress (2021-2022).
The True Lender Rule has been controversial since its inception. The True Lender Rule, enacted by the Office of the Comptroller of the Currency (OCC) last October, was meant to provide legal certainty for lenders. The rule confirmed that when a national bank or federal savings association makes a loan in the context of a partnership between a bank and a third party, such as a marketplace lender, the bank is considered the true lender. Compliance Alliance provided a summary of the rule here. As a result of the recent repeal, the True Lender Rule is voided retroactively. Under the new law, the OCC is barred from issuing any regulation in “substantially the same form” absent express congressional authorization. The revocation does not set a different standard for who is the true lender on a loan; it eliminates the OCC’s bright-line standard and reverts the law to the inconsistent court-created standards governing when a bank is acting as the “true lender.”
Since the Madden Fix worked together with the True Lender Rule, some have questioned whether President Biden’s repeal of the OCC’s True Lender Rule affected the “Madden Fix,” or the “valid-when-made” doctrine. This doctrine states that a loan that is valid when it is created remains valid when it is sold, even if the purchaser of the loan resides in a jurisdiction where the loan would otherwise be invalid. The repeal does not seem to affect the Madden Fix. S.J.Res.15, retroactively voided “the rule submitted by the Office of the Comptroller of Currency relating to “National Banks and Federal Savings Associations as Lenders” (85 Fed. Reg. 68742 (October 30, 2020)).” The Madden Fix was a separate rulemaking, which was finalized in 85 FR 33530. While the repeal of the True Lender Rule does not affect the separate Madden Fix rules, which have not been subject to a CRA disapproval effort, those rules have been challenged in court by several state attorneys general under the Administrative Procedure Act.
Compliance Alliance is committed to bringing you the updates you need to stay compliant. If you have any questions about the repeal, feel free to chat with us on the Hotline.