On October 27, 2020, the Office of the Comptroller of the Currency (“OCC”) issued a final rule that determines when a national bank or Federal savings association (collectively, “banks”) makes a loan and therefore is the “true lender” in the context of a partnership between a bank and a third party.  The rule provides that a bank makes a loan if, as of the date of origination, it (1) is named as the lender in the loan agreement or (2) it funds the loan.  It differs from the proposed rule only in providing that, in the case where one bank is named as the lender in the loan agreement and a different bank funds the loan, the bank named in the agreement is the one that makes the loan.

The final rule is intended to resolve the uncertainty that has been created by a number of court rulings imposing divergent standards for determining which entity in a bank-fintech lending partnership actually makes a loan.  A bank-fintech lending partnership is an arrangement in which a traditional bank collaborates with a fintech company to offer financial services to clients.

Federal law allows banks to enter into contracts, to make loans, and then to transfer the loans and assign the loan contracts.  However, neither the statutory framework nor the OCC’s regulations explicitly address which entity makes a loan when the loan is originated as part of a lending partnership involving a bank and a third party.  The resulting uncertainty may discourage partnerships, which in turn may limit competition, restrict access to affordable credit, and chill innovation.  The OCC aims to provide certainty with the new rule.

In addition, the OCC highlighted that lending partnerships between national banks or Federal savings associations and third parties can expand access to credit and allow banks to remain competitive as the financial sector evolves.  Banks are able to leverage technology developed by innovative third parties to reach a wider array of customers, making credit more broadly available.

The OCC received more than 4,000 comment letters on its true lender proposal, many of which expressed concerns that bank-fintech partnerships can lead to inappropriate “rent-a-charter” lending schemes, where a bank allegedly receives a fee to rent its charter and unique legal status to a third party.  According to the letters, such “schemes” enable the third party to evade state and local laws, including state consumer protection laws, and allow the bank to disclaim compliance responsibility for the loans.  The preamble to the new rule rejects the assertion that it will cause a resurgence of “rent-a-charter” arrangements because the OCC will hold banks accountable for compliance with the “robust supervisory framework” that applies to any loan a bank makes and to the third-party relationships in which they engage.  Under this framework, banks are expected to maintain prudent credit underwriting and loan documentation practices and to have internal controls and information systems that enable compliance with applicable laws and regulations, including fair lending laws and laws that prohibit unfair, deceptive, or abusive acts and practices.

By its terms, the final rule will be effective 60 days after publication in the Federal Register.  As is required by the Congressional Review Act (“CRA”), the OCC indicates that it will submit the rule for review by Congress and the Government Accountability Office.  That submission will not delay publication in the Federal Register, but because it will occur late in the second session of the 116th Congress, the time for Congress’s review under the CRA likely will carry over into the first session of the 117th Congress in 2021.