United States:
Senate Passes CRA Resolution To Override OCC True Lender Rule
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Yesterday, by a vote of 52-47, the Senate passed the resolution introduced by
Democratic Senators under the Congressional Review Act (CRA) to
overturn the OCC’s “true lender” final
rule. The rule addresses when a national bank or federal
savings association should be considered the “true
lender” in the context of a partnership with a third party.
Three Republican Senators voted in favor of the resolution: Cynthia
Lummis, Marco Rubio, and Susan Collins.
According to media reports, the White House
issued a statement before the vote supporting the CRA resolution.
The resolution will now be voted on by the Democratic-controlled
House where it is expected to pass.
Pursuant to the CRA, the enactment of a disapproval measure
would preclude the OCC from subsequently reissuing the rule or
adopting a new rule that is substantially the same as the
disapproved rule unless “the reissued or new rule is
specifically authorized by a law enacted after the date of the
joint resolution disapproving the original rule.”
A Congressional override of the rule would render moot the lawsuit filed by a group of state attorneys
general in January 2021 seeking to set aside the rule.
Having submitted a comment letter to the OCC in support of the
true lender rule when it was proposed, we are obviously
disappointed by the Senate vote. In our view, the rule established
a clear and logical bright line confirming and clarifying that a
bank or savings association is properly regarded as the “true
lender” when, as of the date of origination, the bank is named
as the lender in a loan agreement or funds the loan. An override of
the rule will deprive banks and their partners of the certainty the
rule would have provided.
The impending rejection of the OCC true lender rule highlights
the risks involved in bank-model lending programs and the need to
structure these programs thoughtfully, with a view to the risks.
While most of the legal action in this space has been in the
context of high-rate programs, with APRs near or in excess of a
triple-digit range, authorities in Colorado and Maryland have challenged programs with APRs of
36% or less.
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