On June 30, President Biden signed into law a joint resolution to repeal the Office of the Comptroller of the Currency’s (OCC) so-called true lender rule. The rule was repealed under the Congressional Review Act (CRA), which allows Congress to repeal new federal regulations by passing a joint resolution of disapproval that must be later signed by the president. Federal regulations repealed under the CRA are treated as if they had never gone into effect.
The true lender rule established a bright-line standard to identify the “true lender” in lending partnerships between national banks and third parties, including financial technology companies. Uncertainty in this area had caused confusion because the identity of the lender determines which state’s interest-rate limits apply to a loan: if a national bank is the lender, then the interest-rate limits of the bank’s home state apply. Under the rule, a national bank would have been considered the lender of a loan if, as of the date of origination, it (1) was named as the lender in the loan agreement or (2) funded the loan. If one bank was named as the lender in the loan agreement and another bank funded the loan, the rule clarified that the bank that was named as the lender in the loan agreement was the lender.
The repeal of the true lender rule marks a return to a world of uncertainty caused by fact-intensive, multifactor tests that some courts have applied to determine which entity makes a loan. In promulgating the true lender rule, the OCC recognized that this uncertainty “may discourage banks from entering into lending partnerships [with third parties], which, in turn, may limit competition, restrict access to affordable credit, and chill the innovation that can result from these relationships.” The true lender rule was intended to provide a uniform and predictable standard to address this uncertainty. Under the CRA, the OCC is prohibited from issuing a substantially similar rule, unless Congress authorizes the agency to do so in a subsequent law.