Reaffirmation of OCC and FDIC rule: Limits or no interest rates on loans from national and state banks and federal savings associations remain when the loan is sold or ceded | Buchalter

Under the long-recognized doctrine of validity at the time of origination, if a loan was not subject to state usury law when it was made, it does not become so by thereafter, even if it is subsequently sold or assigned to another party. The doctrine has long been applied by the courts and used in secondary market sales, but its application to a non-bank buyer was rejected by the Second Circuit in 2015 in Madden v Midland Funding, LLC.

In 2020, the OCC and FDIC published their rules valid when established, confirming that the rule applied to loans made by national banks and federal savings associations, as well as state banks in accordance to the authority of the FDIC.

In the most recent legal challenge, on February 8, the U.S. District Court for the Northern District of California dismissed California, Illinois and New York’s challenge to the OCC and FDIC rules. On February 9, Acting OCC Comptroller Michael Hsu reiterated that the OCC rule remains in place. However, he noted that the OCC is committed to ensuring that the rule is not abusive, stating:

This legal certainty must be used for the benefit of consumers and must not be abused. I want to reiterate that predatory lending has no place in the federal banking system. The OCC is committed to strong supervision that expands financial inclusion and ensures that banks are not used as a vehicle for “charter lease” arrangements.

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