McGuireWoods Authors Examine OCC’s True Lender Rule

November 18, 2020

In an Oct. 12, 2020, Daily Journal article, McGuireWoods attorneys Salwa Kamal, Alexander Gershen and Carolee Hoover examined the “true lender” rule and the ongoing battle over the bank partnership model.

In July, the Office of the Comptroller of the Currency released a proposed rule to clarify when a national bank or its nonbank partner is the “true lender” of a loan and to guide banks and fintech lenders that offer loans through partnership models.

“Along with its recent ‘valid-when-made’ rule, the ‘true lender’ rule is another step streamlining regulations for national banks and loans originated by them, while simultaneously expanding the OCC’s supervisory authority,” the authors wrote.

Though proponents of these partnerships praise the broadened access to third-party borrowers, the authors said, regulatory uncertainty remains because of the lack of uniformity between jurisdictions and the subjective nature of the tests used to determine the true lender.

If it adopts the true lender rule, “the OCC can expect to face similar legal challenges … potentially culminating in appeals to the U.S. Supreme Court given that the rule implicates federal regulatory authority and a state’s power over its banks and non-bank lenders,” they wrote.