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The OCC’s "True Lender" Final Rule

Regulatory agencies and rulemaking for compliance

This week, the Office of the Comptroller of the Currency (OCC) finalized a rule that determines who is considered the "true lender" in the complex lending relationships between banks and third-party lenders.

In its final ruling issued on Tuesday, the OCC noted that it wanted to provide a means for the national banks to remain competitive in the ever-evolving world of financial services. In the final rule, a national bank will be considered the "true lender" if, as of the date of origination, it (1) was named as the lender in the loan agreement, or (2) funded the loan.

Some of the concerns expressed by advocacy groups include that in creating this ruling, the OCC has opened up the opportunity for lending schemes and arrangements, such as the ability for a bank to "rent" its charter to the third party, which then allows the third party to avoid having to comply with state and local laws, many of which were put in place to protect consumers. The OCC is adamant that this final rule takes this under consideration and that accountability measures are in place.

This rule is set to go into effect within the next 60 days to the disdain of many State attorney generals and consumer advocacy groups who are concerned that this rule may open up the door to predatory lending and could hurt marginalized communities. There are even some questions as to the legality of the ruling and confusion as to how this impacts statutes and regulations as overseen by the Consumer Financial Protection Bureau (CFPB).

Proponents of the rule feel that it supports the market because it promotes access to credit. They argue that consumers will be protected because they would be able to originate loans through a bank and marginalized communities could secure loans from banks instead of going to payday or other alternative lenders.  Supporters also believe that accountability measures such as UDAAP would protect consumers from unfair lending practices.

There are also industry groups that support the ruling, but are concerned that the ruling may not be structured enough opening up the door to issues with other bank financing arrangements.

With the upcoming election, it is unclear what the future holds for these changes, however, it is pretty clear that although the final rule has been issued, the discussion and potential legal battles around this ruling are far from over.  

But, no matter what the future holds for the ruling, banks and lenders must remain vigilant in their compliance efforts and the monitoring of their third-party partners. Speak to one of our experts to learn how PerformLine can take the stress out of your ever-changing compliance needs.

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