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This comment letter opposes the adoption of a proposed rule published by the Office of the Comptroller of the Currency (“OCC”) on July 22, 2020. 85 Fed. Reg. 44223 (2020). The proposed rule would determine whether a national bank or federal savings association “makes a loan and is the ‘true lender’ in the context of a partnership between a bank and a third party, such as a marketplace lender.” Id. The proposed rule – to be codified at 12 C.F.R. 7.1031 – would provide that a national bank or federal savings association is deemed to “make” a loan if the institution, “as of the date of origination: (a) Is named as the lender in the loan agreement; or (b) Funds the loan.” Id. at 44228.

The proposed rule is designed to operate in combination with the OCC’s recently-adopted “Madden-fix rule.” 85 Fed. Reg. 33530 (2020). Under the Madden-fix rule, a loan that is “made” by a national bank or federal savings association will retain its preemptive immunity from state usury laws under 12 U.S.C. 85 or 1463(g) if the loan is “subsequently sold, assigned, or otherwise transferred” to a nonbank.

The proposed rule – in tandem with the Madden-fix rule – would allow a national bank or federal savings association to form “partnerships” with nonbank lenders, including payday lenders and auto title lenders. The two rules would allow a national bank or federal savings association to be treated as the “lender” under 12 U.S.C. 85 or 1463(g) for loans that are originated in its name or that it funds, even if it sells those loans to a nonbank “partner” one day after the loans are originated. 85 Fed. Reg. at 44225. The proposed rule would preempt state “true lender” laws, under which courts apply a substance-over-form analysis and consider several fact-specific issues in determining whether a loan is “made” by a bank as opposed to its nonbank “partner.”

The two rules would permit a nonbank “partner” of a national bank or federal savings association to claim preemptive immunity from state usury laws under 12 U.S.C. 85 or 1463(g). The national bank or federal thrift could act as a mere conduit by quickly transferring loans to the nonbank “partner,” which could assume all of the economic risks and control the terms and enforcement of the loans. Such “partnerships” would amount to “rent-a-charter” schemes, which the OCC has barred national banks from entering since the early 2000s.

In addition, the proposed rule evidently seeks to preempt a wide range of other state laws – including state licensing, examination, and consumer protection laws – that would otherwise apply to nonbank lenders that establish “partnerships” with national banks or federal savings associations. Thus, the proposed rule’s scope of preemption is not limited to state usury laws and potentially affects a far broader range of state laws.

This comment letter argues that the OCC’s proposed rule is unlawful, invalid, and contrary to the public interest for the following reasons:

(1) The proposed rule does not comply with 12 U.S.C. 25b, which governs the OCC’s authority to issue rules that seek to preempt state consumer financial laws.

(2) The proposed rule unlawfully seeks to override state “true lender” laws without congressional authorization and in contravention of applicable court decisions.

(3) The proposed rule is contrary to the public interest because it would allow national banks and federal savings associations to establish “rent-a-charter” schemes with nonbank lenders, thereby encouraging predatory lending and other abusive practices that would inflict very serious injuries on consumers and small businesses.

(4) The proposed rule violates the Administrative Procedure Act because the OCC has not provided the required public notice of its intention to reverse the agency’s existing policy banning “rent-a-charter” schemes, as well as the OCC’s factual, legal, and policy reasons for reversing that policy. Accordingly, the OCC may not adopt the proposed rule unless the agency first provides to the public: (A) notice of the OCC’s intention to reverse its existing policy banning “rent-a-charter” schemes and an explanation of the agency’s reasons for doing so, and (B) a reasonable opportunity to submit comments on the OCC’s proposal to reverse that policy and its stated reasons for doing so.

This comment letter contends that the OCC should withdraw the proposed rule and should not issue any other rule or order that would (1) override state “true lender” laws, or (2) allow national banks to establish “rent-a-charter” schemes with nonbank lenders.

GW Paper Series

No. 2020-49

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