On July 20, 2020, the Office of the Comptroller of the Currency (OCC) issued a Notice of proposed regulations (NPR) defining the “real lender” in banking partnerships with third party lenders. The NPR is seeking comments on a proposed regulation that would determine when a national bank or federal savings bank makes a loan and is the “true lender” in the context of a partnership between a bank and a third party. Fintechs engaging in consumer lending typically rely on banking partnerships to offer credit on nationally consistent terms. The relatively concise NPR provides that a bank will grant a loan if, on the inception date, it is either named as the lender in the loan agreement or is financing the loan.

The NPR follows the recent adoption by the OCC of its final rule on “valid once done” doctrine (read more here). The True NPR Lender and Valid Final Rule once established are intended to provide clarity and legal certainty to participants in banking partnerships or third party agreements as a result of federal and state litigation. The OCC advances the NPR as it believes that partnered lending relationships with banks can be effective tools to facilitate affordable access to credit, but that there is growing uncertainty about the legal framework that applies to banks. loans made within the framework of these relationships. According to the OCC, “this uncertainty can discourage banks and third parties from forming relationships, limit competition and hamper innovation resulting from these partnerships, which can restrict access to affordable credit.”

Consumer advocates are expected to be critical of the NPR, as it and the prior valid rule once established may be open to abuse by predatory lenders entering into “rental” agreements. charter ”with national banks and federal savings banks. Under federal law, banks regulated by the OCC can export their home state’s interest rate notwithstanding another state’s usury limits. However, the OCC has ignored concerns about potential abuse. The preamble to the NPR notes that when a bank grants a loan, “a strong federal framework applies” which ensures that the loan is made in a safe and sound manner and in accordance with applicable laws and regulations relating to prudence and financial protection. of consumers. The OCC also cited its role as the prudential regulator of the bank’s lending activities and the applicability of the OCC’s third-party risk management guidelines to the banking partnership relationship.

The NPR comment period ends on September 3, 2020.

This update is for informational purposes only and should not be construed as legal advice on specific facts or circumstances. According to the rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.