OCC publishes plan to change “real lender” rules

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The Office of the Comptroller of the Currency (OCC) has proposed a new rule for bank loans designed to guarantee the identity of lenders.

The “real lender” rule will help remove the uncertainty created when banks prepare and sell their portfolios of credits and loans to other buyers.

The planned rule will introduce a “clear test” to specify that a bank is the true lender if it is designated as such in the loan agreement or is financing the loan.

“Banks’ lending relationships with third parties can facilitate access to affordable credit,” the OCC said in a statement.

“However, the relationship has been subject to growing uncertainty about the legal framework that applies to loans made under these relationships.

“This uncertainty can discourage banks and third parties from forming relationships, limit competition, and inhibit innovation resulting from these partnerships, which can restrict access to affordable credit.”

Banks often sell books of credit or loans such as credit card debt through securitizations. These transactions allow banks to issue more credit and support more borrowers.

However, such agreements also created uncertainty as to which party is ultimately responsible for the loan, the OCC said in its proposal.

Given the lack of specificity of the current legal framework and the absence of prior measures to remedy this problem, courts are often called upon to rule on whether the disputed loans are made by the banks or their partners.

“A growing body of case law has introduced divergent standards to address this problem”, said the OCC.

In some cases, he explained, the entity named in the loan agreement is sufficient for a judge to make a decision. However, many other cases required the provision of more information and became much more complex.

Even when nominally engaged in the same analysis – determining which entity has ‘the predominant economic interest’ in the transaction – courts do not necessarily take into account all of the same factors or grant each factor the same. weight. “ added the OCC.

The proposed new rule states that, “If a bank is designated in the loan agreement as a lender on the original date, the OCC considers this imprimatur as conclusive proof that the bank is exercising its power to grant loans”, and is subject to oversight by the OCC and other banking sector regulators.

In addition, if a bank finances a loan and is therefore determined by the OCC to have a “Predominant economic interest” in the loan, it will then be considered as the “True lender”.

Comments on the proposal must be submitted by September 3. The OCC plan can be accessed through the Federal Register here.

The news comes as Connecticut-based Patriot Bank announced it had acquired $ 52 million in prepaid debit card deposits from “a leading national provider.” Chairman Michael Carrazza said the transaction was a “vital move towards the bank’s longer-term deposit-taking strategy.”


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