The real lender rule: a step closer to repeal


United States: The true lender rule: a step closer to repeal

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The Office of the Comptroller of the Currency (OCC) real lender rule is all but repealed. On May 11, 2021, the US Senate voted to approve a joint resolution to repeal the true lender rule under the Congressional Review Act (the CRA). The House is expected to pass the measure and the president has expressed support for the resolution.

The eventual repeal of the real lender rule will likely affect consumer loans. In today’s consumer credit arena, a bank may not be the lender of the loan. It is not uncommon for the loan agreement to designate a national bank as the lender, with a non-bank entity as the lender. The question then becomes which entity is the “real lender”. Under the real lender rule, the national bank is the lender because the loan agreement identifies it as such. The designation of “true lender” is important. If the “true lender” is a national bank, state usury laws generally do not apply to the loan because the National Bank Act of 1863 prevails over state law. On the other hand, if the “real lender” is a non-bank entity, state usury laws would apply to the loan. Without clear guidance on this issue, non-bank entities may become reluctant to extend loans, which would likely affect the financial products and services offered to consumers.

To compound the uncertainty, the next Comptroller of the Currency will not have the opportunity to change the True Lender Rule if it is repealed. Congress proposed repeal under the CRA, which prohibits the OCC from promulgating a replacement rule that is “substantially similar” to the repealed one. It is unclear how the BCC will deal with this issue in the future. We will continue to monitor this issue for future developments.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought on your particular situation.

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