Permissible Interest on Loans That Are Sold, Assigned, or Otherwise Transferred, 33530-33536 [2020-11963]
Download as PDF
33530
Federal Register / Vol. 85, No. 106 / Tuesday, June 2, 2020 / Rules and Regulations
(d) Social Security account numbers
must be partially redacted in documents
sent by mail whenever feasible.
PART 35—MEDICAL USE OF
BYPRODUCT MATERIAL
4. The authority citation for part 35
continues to read as follows:
■
Authority: Atomic Energy Act of 1954,
secs. 81, 161, 181, 182, 183, 223, 234, 274 (42
U.S.C. 2111, 2201, 2231, 2232, 2233, 2273,
2282, 2021); Energy Reorganization Act of
1974, secs. 201, 206 (42 U.S.C. 5841, 5846);
44 U.S.C. 3504 note.
5. In § 35.3045, revise paragraph
(g)(1)(ii) to read as follows:
■
§ 35.3045 Report and notification of a
medical event.
*
*
*
*
*
(g) * * *
(1) * * *
(ii) Identification number or if no
other identification number is available,
the social security number of the
individual who is the subject of the
event; and
*
*
*
*
*
■ 10. In § 35.3047, revise paragraph
(f)(1)(ii) to read as follows:
§ 35.3047 Report and notification of a dose
to an embryo/fetus or a nursing child.
*
*
*
*
*
(f) * * *
(1) * * *
(ii) Identification number or if no
other identification number is available,
the social security number of the
individual who is the subject of the
event; and
*
*
*
*
*
Dated: May 28, 2020.
For the Nuclear Regulatory Commission.
Annette L. Vietti-Cook,
Secretary of the Commission.
[FR Doc. 2020–11899 Filed 6–1–20; 8:45 am]
BILLING CODE 7590–01–P
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Parts 7 and 160
[Docket ID OCC–2019–0027]
khammond on DSKJM1Z7X2PROD with RULES
RIN 1557–AE73
Permissible Interest on Loans That Are
Sold, Assigned, or Otherwise
Transferred
Office of the Comptroller of the
Currency, Treasury.
ACTION: Final rule.
AGENCY:
VerDate Sep<11>2014
16:47 Jun 01, 2020
Jkt 250001
Federal law establishes that
national banks and savings associations
(banks) may charge interest on loans at
the maximum rate permitted to any
state-chartered or licensed lending
institution in the state where the bank
is located. In addition, banks are
generally authorized to sell, assign, or
otherwise transfer (transfer) loans and to
enter into and assign loan contracts.
Despite these authorities, recent
developments have created legal
uncertainty about the ongoing
permissibility of the interest term after
a bank transfers a loan. This rule
clarifies that when a bank transfers a
loan, the interest permissible before the
transfer continues to be permissible
after the transfer.
DATES: The final rule is effective on
August 3, 2020.
FOR FURTHER INFORMATION CONTACT:
Andra Shuster, Senior Counsel, Karen
McSweeney, Special Counsel, or
Priscilla Benner, Senior Attorney, Chief
Counsel’s Office, (202) 649–5490, for
persons who are deaf or hearing
impaired, TTY, (202) 649–5597, Office
of the Comptroller of the Currency, 400
7th Street SW, Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
SUMMARY:
I. Background
On November 21, 2019, the OCC
published a notice of proposed
rulemaking (proposal or NPR) to codify
its conclusion that when a national bank
or savings association (bank) sells,
assigns, or otherwise transfers (transfers)
a loan, interest permissible before the
transfer continues to be permissible
after the transfer.1
As the proposal explained, a bank
may charge interest on a loan at the
maximum rate permitted to any statechartered or licensed lending institution
in the state where the bank is located.
In addition, banks are generally
authorized to transfer their loans and to
enter into and assign loan contracts.
Despite these authorities, recent
developments have created legal
uncertainty about the ongoing
permissibility of the interest term after
a bank transfers a loan.
Consistent with the proposal, this
regulation addresses that legal
uncertainty by clarifying and
reaffirming the longstanding
understanding that a bank may transfer
a loan without affecting the permissible
interest term. Based on its supervisory
experience, the OCC believes that
unresolved legal uncertainty about this
issue may disrupt banks’ ability to serve
1 Permissible Interest on Loans That Are Sold,
Assigned, or Otherwise Transferred, 84 FR 64229
(Nov. 21, 2019).
PO 00000
Frm 00004
Fmt 4700
Sfmt 4700
consumers, businesses, and the broader
economy efficiently and effectively,
particularly in times of economic stress.
The OCC also believes that enhanced
legal certainty may facilitate responsible
lending by banks, including in
circumstances when access to credit is
especially critical.
II. Overview of Comments
The OCC received over sixty
comments on its NPR, including
comments from industry trade
associations, nonbank lenders,
community groups, academics, state
government representatives, and
members of the public. Many
commenters expressed support for the
rule. Some stated that the legal
uncertainty discussed in the proposal
has had negative effects on the primary
and secondary markets for bank loans.
They argued that legal certainty
regarding a bank’s ability to transfer
non-usurious loans without affecting the
interest term would benefit banks and
markets, including for liquidity and
diversification purposes. Many
supporting commenters also agreed that
the OCC has the authority to address
this issue by regulation and that the
proposal reflected a permissible
interpretation of relevant Federal
banking law.
The OCC also received comments
opposed to the rule, which raised both
legal and policy concerns. Many
commenters argued that the OCC does
not have the authority to issue this
regulation. Several also argued that the
OCC’s proposal was subject to, but did
not comply with, the substantive and
procedural provisions in 12 U.S.C. 25b.
Opposing commenters also questioned
the need for the rule, stating there is no
evidence that legal uncertainty has had
negative effects on banks or markets.
Relying on these and other arguments,
some commenters also argued that the
OCC’s proposal did not comply with the
Administrative Procedure Act (APA).2
Finally, certain commenters stated that
the NPR would facilitate predatory
lending by promoting rent-a-charter
relationships and allowing nonbanks to
evade otherwise applicable state law.
Two commenters provided empirical
studies analyzing the effects of the
Madden v. Midland Funding, LLC 3
decision (Madden), including evidence
that Madden restricted access to credit
for higher-risk borrowers in states
25
U.S.C. 551 et seq.
F.3d 246 (2d Cir. 2015). In this case, the U.S.
Court of Appeals for the Second Circuit held that
a purchaser of a loan originated by a national bank
could not charge interest at the rate permissible for
the bank if that rate would be impermissible under
the lower usury cap applicable to the purchaser.
3 786
E:\FR\FM\02JNR1.SGM
02JNR1
Federal Register / Vol. 85, No. 106 / Tuesday, June 2, 2020 / Rules and Regulations
within the Second Circuit and that it
caused a rise in personal bankruptcies
due to a decline in marketplace lending,
especially for low-income households.
III. Analysis
As noted in the proposal, the OCC is
undertaking this rulemaking to clarify
that a bank may transfer a loan without
impacting the permissibility or
enforceability of the interest term in the
loan contract, thereby resolving the legal
uncertainty created by the Madden
decision. To support this conclusion,
the proposal discussed a bank’s
authority to lend money, to make
contracts, to charge interest consistent
with the laws of the state in which it is
located, and to subsequently transfer
that loan and assign the loan contract.
It also discussed the principles of
‘‘valid-when-made’’ and the
assignability of contracts, which, if
applied to the transfer of a loan, would
generally produce an outcome
consistent with the OCC’s conclusion.
khammond on DSKJM1Z7X2PROD with RULES
Authority
As noted above, although many
supporting commenters expressly
agreed that the OCC may promulgate
this rule, many opposing commenters
questioned the OCC’s authority, relying
on several principal arguments:
• Certain Federal statutes (12 U.S.C.
85 and 1463(g)) are unambiguous and
only address the interest a bank may
charge. Because these statutes are
unambiguous, the OCC cannot invoke
National Cable & Telecommunications
Ass’n v. Brand X internet Services 4
(Brand X) to overturn the result in
Madden.
• Valid-when-made is not a historical
usury principle that supports the OCC’s
proposal.
• There is no basis to conclude that
Federal law should preempt state usury
laws based on a bank’s power to assign
contracts.
• There is no basis to conclude that
Federal law should preempt state usury
laws based on a bank’s authority to
transfer loans.
The OCC has carefully considered
these comments and believes there is
ample authority to issue this regulation.
Federal law grants national banks broad
authority to engage in the business of
banking.5 Specifically relevant here, the
National Bank Act (NBA) provides
national banks with enumerated
powers, including the ability to lend
money, and ‘‘all such incidental powers
4 545
U.S. 967 (2005).
OCC will discuss the authority to issue this
rule for national banks before discussing the
authority to issue this rule for savings associations.
5 The
VerDate Sep<11>2014
16:47 Jun 01, 2020
Jkt 250001
as shall be necessary to carry on the
business of banking.’’ 6 By statute,
national banks also have the authority to
transfer their loans.7
Furthermore, the NBA expressly
authorizes national banks to make
contracts.8 Among the essential rights
associated with this power is the right
to assign some or all of the benefits of
a contract to a third party.9 Generally,
all contractual rights may be assigned
‘‘in the absence of clear language
expressly prohibiting the assignment
and unless the assignment would
materially change the duty of the obligor
or materially increase the obligor’s
burden or risk under contract or the
contract involves obligations of a
personal nature.’’10 In addition,
contractual rights generally may not be
assigned if the assignment is
‘‘specifically forbidden by statute or
. . . void as against public policy.’’ 11
All ordinary business contracts are
assignable, and a contract for money
due in the future is among the types of
contracts that normally may be
assigned.12 Therefore, a national bank’s
authority to enter into loan contracts
pursuant to 12 U.S.C. 24(Third)
necessarily includes the authority to
assign such loan contracts.13
When a national bank exercises its
authority to lend money and enters into
a loan contract, the NBA authorizes the
bank to ‘‘charge on any loan . . .
interest at the rate allowed by the laws
of the State . . . where the bank is
located.’’ 14 Section 85 is the sole
provision that governs the interest
permissible on a loan made by a
national bank, and it operates primarily
by incorporating the usury laws of the
state in which the bank is located.
Section 85 and 12 U.S.C. 86, which
6 12
U.S.C. 24(Seventh) and 371.
U.S.C. 24(Seventh) and 371; 12 CFR 7.4008
and 34.3; see also Planters’ Bank of Miss. v. Sharp,
47 U.S. 301, 322 (1848) (concluding that the
authority to transfer a loan is a ‘‘necessarily
implied’’ corollary to the authority to make a loan).
It should be noted that rights authorized by a statute
need not be express—they are often implicit in the
other rights given by the statute. See, e.g., Franklin
Nat’l Bank v. New York, 347 U.S. 373, 377–78
(1954) (concluding that the right to accept savings
deposits implicitly includes the right to advertise).
8 12 U.S.C. 24(Third).
9 Restatement (Second) of Contracts section 317
(Am. Law Inst. 1981).
10 29 Williston on Contracts section 74:10 (4th
ed.) (footnote omitted).
11 Id. at section 74:23.
12 See Bank of Am., N.A. v. Rice, 780 S.E.2d 873
(N.C. Ct. App. 2015).
13 See also Franklin Nat’l Bank, 347 U.S. at 377–
78.
14 12 U.S.C. 85. Section 85 also allows a national
bank to charge ‘‘1 per centum in excess of the
discount rate on ninety-day commercial paper in
effect at the Federal reserve bank in the Federal
reserve district where the bank is located.’’ Id.
7 12
PO 00000
Frm 00005
Fmt 4700
Sfmt 4700
33531
establishes the remedy for a violation of
section 85, constitute the
comprehensive statutory scheme
governing the interest permitted on
national bank loans.15
The NBA thus clearly establishes that
a national bank may (1) lend money,
pursuant to a loan contract, with an
interest term that is consistent with the
laws of the state in which the bank is
located and (2) subsequently transfer
that loan and assign the loan contract.
However, the comprehensive statutory
scheme regarding interest permitted on
national bank loans does not expressly
address how the exercise of a national
bank’s authority to transfer a loan and
assign the loan contract affects the
interest term. When Congress enacted
the NBA, it understood that loan
transfers were a fundamental aspect of
the business of banking and that such
transfers would play an important role
in the national banking system.16
Therefore, section 85’s silence in this
regard is ‘‘conspicuous[ ],’’ 17 and the
OCC may interpret section 85 to resolve
this silence.18
The OCC is not persuaded by
commenters who argued that 12 U.S.C.
1735f–7a forecloses an argument that
section 85’s silence is ambiguous as to
its application to loan transfers. These
commenters argued that section 1735f–
7a preempts state usury laws and
expressly applies to originations and
sales of certain loans, and therefore,
Congress must be presumed to have
intentionally omitted similar language
in section 85, thereby precluding the
application of section 85 to loan
transfers. These commenters argued that
this presumption is particularly strong,
because several statutory parallels to
section 85 were enacted at the same
time as section 1735f–7a. At least one
commenter also cited 12 U.S.C. 3803 to
15 See Beneficial Nat’l Bank v. Anderson, 539 U.S.
1 (2003).
16 See Planters’ Bank, 47 U.S. at 323 (‘‘[Banks]
must be able to assign or sell [their] notes when
necessary and proper, as, for instance, to procure
more specie in an emergency, or return an unusual
amount of deposits withdrawn, or pay large debts
for a banking-house.’’).
17 Baldwin v. United States, 921 F.3d 836, 842
(9th Cir. 2019).
18 See Chevron U.S.A., Inc. v. Nat. Res. Def.
Council, Inc., 467 U.S. 837, 843 (1984) (‘‘[I]f the
statute is silent or ambiguous with respect to the
specific issue, the question for the court is whether
the agency’s answer is based on a permissible
construction of the statute.’’); see also Robinson v.
Shell Oil Co., 519 U.S. 337, 341 (1997) (‘‘The
plainness or ambiguity of statutory language is
determined by reference to the language itself, the
specific context in which that language is used, and
the broader context of the statute as a whole.’’)
(emphasis added); Smiley v. Citibank (S.D.), N.A.,
517 U.S. 735 (1996) (Smiley) (deferring to the OCC’s
reasonable interpretation of section 85’s ambiguity
with respect to meaning of ‘‘interest’’).
E:\FR\FM\02JNR1.SGM
02JNR1
33532
Federal Register / Vol. 85, No. 106 / Tuesday, June 2, 2020 / Rules and Regulations
khammond on DSKJM1Z7X2PROD with RULES
make a similar argument.19 The OCC
disagrees. First, while the OCC agrees
that section 1735f–7a applies to certain
loans that have been transferred,20 this
is not by virtue of express statutory
language addressing loan transfers.
Rather, section 1735f–7a implicitly
applies to transferred loans,
notwithstanding its silence on this
issue, for reasons similar to why the
OCC concludes that section 85 applies
to transferred loans. Moreover, even if
section 1735f–7a expressly applied to
loan transfers, it would further highlight
the ambiguity created by the silence in
section 85.21 As courts have stated,
affirmative language in one provision
(section 1735f–7a) and statutory silence
in another (section 85) can indicate that
Congress intended to provide the
administering agency (the OCC) with
discretion to interpret the latter
statute.22
After careful consideration, the OCC
continues to conclude that it is
appropriate to resolve the silence in
section 85 by providing that when a
bank transfers a loan, interest
permissible before the transfer
continues to be permissible after the
transfer.
Well before the passage of the NBA,
the Supreme Court recognized one of
the ‘‘cardinal rules in the doctrine of
usury’’ and described it as follows: ‘‘a
contract, which, in its inception, is
unaffected by usury, can never be
invalidated by any subsequent usurious
transaction.’’ 23 Courts have also held
the inverse—a loan that is usurious at
its inception remains usurious until
19 This statute authorizes housing creditors to
make, purchase, and enforce alternative mortgage
transactions and expressly preempts certain state
laws.
20 See S. Rep. No. 96–368, at 19 (1979) (‘‘In
connection with the provisions in this section, it is
the Committee’s intent that loans originated under
this usury exemption will not be subject to claims
of usury even if they are later sold to an investor
who is not exempt under this section.’’).
21 This same conclusion applies to the extent that
section 3803 expressly addresses transferred loans.
22 Catawba Cty., N.C. v. EPA, 571 F.3d 20, 36
(D.C. Cir. 2009) (‘‘Silence . . . may signal
permission rather than proscription.’’); Cheney R.
Co., Inc. v. ICC, 902 F.2d 66, 69 (D.C. Cir. 1990)
(‘‘[T]he contrast between Congress’s mandate in one
context with its silence in another suggests not a
prohibition but simply a decision not to mandate
any solution in the second context, i.e., to leave the
question to agency discretion. Such a contrast
(standing alone) can rarely if ever be the ‘direct[]’
congressional answer required by Chevron.’’);
Clinchfield Coal Co. v. Fed. Mine Safety & Health
Review Comm’n, 895 F.2d 773, 779 (D.C. Cir. 1990)
(‘‘[W]here an agency is empowered to administer
the statute, Congress may have meant that in the
second context the choice should be up to the
agency.’’).
23 See Nichols v. Fearson, 32 U.S. (7 Pet.) 103, 109
(1833); see also Gaither v. Farmers’ & Mechs.’ Bank
of Georgetown, 26 U.S. (1 Pet.) 37, 43 (1828).
VerDate Sep<11>2014
16:47 Jun 01, 2020
Jkt 250001
purged by a new contract.24
Notwithstanding comments to the
contrary, the OCC continues to read the
cases cited in the proposal, particularly
when considered in light of the court
decisions establishing the inverse, to
support a broad proposition: The
usurious or non-usurious character of a
contract endures through assignment.25
The OCC’s interpretation is also
supported by national banks’ ability to
assign contracts, as discussed above.
Commenters argued that the interest
term on a loan should be treated
differently from other loan terms,
including because it derives from a
national bank’s status under Federal
law. For reasons stated in the proposal
and herein, the OCC does not agree that
the interest term of the contract should
be treated differently, nor does it believe
that the enforceability of an assigned
interest term should depend on the
licensing status of the assignor or
assignee.26 Upon assignment, the thirdparty assignee steps into the shoes of the
national bank and may enforce the
rights the bank assigned to it under the
contract.27 To effectively assign a loan
contract and allow the assignee to step
into the shoes of the national bank
assignor, a permissible interest term
must remain permissible and
enforceable notwithstanding the
assignment.28 The loan should not be
considered usurious after the
assignment simply because a third party
is enforcing the contractually agreedupon interest term.29 Furthermore, an
assignment should not change the
borrower’s obligation to repay in any
material way.30
Several commenters argued that, as
common law, valid-when-made and the
24 See, e.g., Auctus Fund, LLC v. Sunstock, Inc.,
405 F. Supp. 3d 218 (D. Mass. 2019); Heide v.
Hunter Hamilton Ltd. P’ship, 826 F. Supp. 224 (E.D.
Mich. 1993); Matthews v. Tripp, 285 Mich. 705
(1938); Westman v. Dye, 214 Cal. 28 (1931); Tribble
v. Anderson, 63 Ga. 31 (1879).
25 This reading has been endorsed by the Solicitor
General of the United States. See Brief for the
United States as Amicus Curiae, Midland Funding,
LLC v. Madden, No. 15–610 (May 24, 2016). Many
commenters also support this reading.
26 See Olvera v. Blitt & Gaines, P.C., 431 F.3d 285,
286, 289 (7th Cir. 2005) (‘‘[T]he assignee of a debt
. . . is free to charge the same interest rate that the
assignor . . . charged the debtor . . . even if the
assignee does not have a license that expressly
permits the charging of a higher rate.’’). As at least
one commenter noted, this case interprets Illinois
state law and, therefore, does not directly address
the issues raised by this rulemaking. However, the
OCC finds the holding and reasoning instructive to
its analysis.
27 Dean Witter Reynolds Inc. v. Variable Annuity
Life Ins. Co., 373 F.3d 1100, 1110 (10th Cir. 2004)
(stating that it was long-established that ‘‘an
assignee stands in the shoes of the assignor’’).
28 See Olvera, 413 F.3d at 288–89.
29 See id. at 286, 289.
30 See 29 Williston on Contracts section 74:10.
PO 00000
Frm 00006
Fmt 4700
Sfmt 4700
assignability of contracts do not provide
the OCC with authority for this
regulation. However, the OCC is not
citing these tenets as independent
authority for this rulemaking but rather
as tenets of common law that inform its
reasonable interpretation of section 85.
Because Congress is presumed to
legislate with knowledge of, and
incorporate, common law, it is
reasonable to interpret section 85 in
light of these tenets.31
The OCC’s interpretation is also
consistent with the purpose of section
85. This statute facilitates national
banks’ ability to operate lending
programs on a nationwide basis, a
characteristic fundamental to national
banks since their inception.32
Recognizing the value of uniformity in
applicable interest law, Congress
extended the principles of section 85 to
savings associations, state-chartered
insured depository institutions, and
insured credit unions.33 Then, in 2010,
while carefully examining the
application of state law to national
banks, Congress expressly preserved the
authority conferred by section 85,
thereby reaffirming its importance.34
Reading section 85 as applying only to
loans that a national bank holds to
maturity would undermine this
statutory scheme.35
The OCC’s interpretation also
promotes safe and sound operations, a
core component of the OCC’s mission as
the prudential regulator of national
banks. Even in the mid-nineteenth
century, the ability to transfer loans was
recognized as an important tool to
manage liquidity and enhance safety
and soundness.36 As the Supreme Court
stated, ‘‘[banks] must be able to assign
or sell [their] notes when necessary and
proper, as, for instance, to procure more
specie in an emergency, or return an
31 Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501
U.S. 104, 108 (1991).
32 See Marquette Nat. Bank of Minneapolis v.
First of Omaha Serv. Corp., 439 U.S. 299, 315–18
(1978) (concluding that Congress was aware of, and
intended to facilitate, interstate lending when it
enacted section 85); Easton v. Iowa, 188 U.S. 220,
229 (1903) (‘‘[The NBA] has in view the erection of
a system extending throughout the country, and
independent, so far as powers conferred are
concerned, of state legislation which, if permitted
to be applicable, might impose limitations and
restrictions as various and as numerous as the
states.’’); Tiffany v. Nat’l Bank of Mo., 85 U.S. 409,
413 (1873) (‘‘National banks have been National
favorites . . . It could not have been intended,
therefore, to expose them to the hazard of
unfriendly legislation by the States . . . .’’).
33 See 12 U.S.C. 1463(g), 1785, and 1831d.
34 12 U.S.C. 25b(f).
35 See Marquette, 439 U.S. at 312 (declining to
interpret section 85 in a manner that would ‘‘throw
into confusion the complex system of modern
interstate banking’’).
36 Planters’ Bank, 47 U.S. 301.
E:\FR\FM\02JNR1.SGM
02JNR1
Federal Register / Vol. 85, No. 106 / Tuesday, June 2, 2020 / Rules and Regulations
unusual amount of deposits withdrawn,
or pay large debts for a bankinghouse.’’ 37 Although the banking system
has evolved significantly in the 150
years since Planters’ Bank, national
banks of all sizes continue to routinely
rely on loan transfers to access
alternative funding sources, manage
concentrations, improve financial
performance ratios, and more efficiently
meet customer needs.38 While the
Madden decision’s effect on a particular
national bank necessarily varies
depending on the bank’s business
model, the resulting legal uncertainty
impairs many national banks’ ability to
rely on this risk management tool,
which is particularly worrisome in
times of economic stress when funding
and liquidity challenges may be acute.39
The OCC, therefore, concludes that its
interpretation promotes safety and
soundness.
The OCC also received comments
arguing that the OCC’s rulemaking is
foreclosed by Madden. The OCC
disagrees; the Second Circuit made no
finding that section 85’s language
unambiguously forecloses the OCC’s
interpretation, nor did it rely on section
85 in arriving at its holding.40 Therefore,
the Madden decision does not limit the
OCC’s ability to issue this rulemaking.
With respect to the comments arguing
that neither section 24(Third) nor
section 24(Seventh) provides the OCC
with authority to preempt state usury
law, the OCC does not cite these statutes
for this purpose. As this authority
section makes clear, these statutes
describe the scope of national bank
authorities, highlight the silence in
section 85, and inform the OCC’s efforts
to resolve this silence.41
37 Id.
at 323.
khammond on DSKJM1Z7X2PROD with RULES
38 Comptroller’s
Handbook, Safety and
Soundness, ‘‘Liquidity,’’ at 5, June 2012.
39 See Strike v. Trans-W. Disc. Corp., 92 Cal. App.
3d 735, 745 (Cal. Ct. App. 1979) (concluding that
the assignee of a bank note could continue to
receive the rate the assigning bank could, because
to conclude otherwise would ‘‘prohibit-make
uneconomic-the assignment or sale by banks of
their commercial property to a secondary market[,
which] would be disastrous in terms of bank
operations and not conformable to the public policy
exempting banks in the first instance’’); see also
LFG Nat’l Capital, LLC v. Gary, Williams, Finney,
Lewis, Watson & Sperando P.L., 874 F. Supp. 2d
108, 125 (N.D.N.Y. 2012) (stating the same).
40 See Brand X, 545 U.S. at 982–83 (requiring that
‘‘judicial precedent hold[ ] that the statute
unambiguously forecloses the agency’s
interpretation’’ (emphasis added)); see also Mhany
Mgmt., Inc. v. Cty. of Nassau, 819 F.3d 581, 618–
19 (2d Cir. 2016) (applying Brand X to adopt a more
recent agency interpretation rather than two prior
Second Circuit interpretations where the court ‘‘did
not hold that the statute was unambiguous’’).
41 See King v. Burwell, 135 S. Ct. 2480, 2489
(2015) (‘‘[W]hen deciding whether the language is
plain, we must read the words ‘in their context and
with a view to their place in the overall statutory
VerDate Sep<11>2014
16:47 Jun 01, 2020
Jkt 250001
Although the foregoing discussion
specifically addresses national banks, it
applies equally to savings associations.
In 12 U.S.C. 1463(g), Congress provided
savings associations with authority
similar to section 85 to charge interest
as permitted by the laws of the state in
which the savings association is located.
Congress modeled section 1463(g) on
section 85 to place savings associations
on equal footing with their national
bank competitors, and thus, these
provisions are interpreted in pari
materia.42 Therefore, the OCC
concludes that section 1463(g) should
be interpreted coextensively with
section 85 in this regard, which will
help ensure that savings associations
and national banks have equal authority
to transfer their loans without affecting
the permissibility of the interest term.
Based on the foregoing, the OCC
concludes that, as a matter of Federal
law, banks may transfer their loans
without impacting the permissibility or
enforceability of the interest term.
12 U.S.C. 25b
Several commenters argued that the
OCC’s rule is subject to the substantive
and procedural requirements set forth in
section 25b and that the OCC has not
complied with these requirements. The
OCC disagrees and continues to
conclude that the requirements of
section 25b are inapplicable to this
rulemaking.
Section 25b applies when the
Comptroller determines, on a case-bycase basis, that a state consumer
financial law is preempted pursuant to
the standard for conflict preemption
established by the Supreme Court in
Barnett Bank of Marion County, N. A. v.
Nelson, Florida Insurance
Commissioner,43 i.e., when the
Comptroller makes a ‘‘preemption
determination.’’ 44 Interpretations about
the substantive scope of section 85 are
not preemption determinations. For
example, the two most recent
substantive Supreme Court opinions on
section 85 primarily analyze what the
scheme.’ ’’ (quoting FDA v. Brown & Williamson
Tobacco Corp., 529 U.S. 120, 133 (2000)).
42 See Gavey Props./762 v. First Fin. Sav. & Loan
Ass’n, 845 F.2d 519, 521 (5th Cir. 1988) (‘‘Given the
similarity of language, the conclusion is virtually
compelled that Congress sought to provide federally
insured credit institutions with the same ‘mostfavored lender’ status enjoyed by national banks.’’);
61 FR 50951, 50968 (Sept. 30, 1996) (‘‘OTS and its
predecessor, the FHLBB, have long looked to the
OCC regulation and other precedent interpreting the
national bank most favored lender provision for
guidance in interpreting [12 U.S.C. 1463(g)] and
OTS’s implementing regulation.’’); OTS letter from
Harris Weinstein, December 24, 1992, 1992 WL
12005275.
43 517 U.S. 25 (1996).
44 See 12 U.S.C. 25b(b)(1)(B).
PO 00000
Frm 00007
Fmt 4700
Sfmt 4700
33533
statute authorizes as a matter of Federal
law, rather than focus on preemption.45
In fact, the Court specifically recognized
this difference in Smiley, noting that
‘‘the question of the substantive (as
opposed to pre-emptive) meaning of a
statute’’ is distinct from ‘‘the question of
whether a statute is pre-emptive.’’ 46
This rulemaking addresses the former
question, i.e., the meaning of section 85.
The proposal simply articulated the
OCC’s view about the substantive scope
of authority granted to banks. The final
rule adopts the same approach and thus
is not a preemption determination
under section 25b.47
The OCC also concludes that this
rulemaking is outside the scope of
section 25b because of section 25b(f),
which provides that ‘‘[n]o provision of
title 62 of the Revised Statutes shall be
construed as altering or otherwise
affecting the authority conferred by
section 85.’’ Section 25b is in title 62 of
the Revised Statutes, and therefore, its
requirements also do not alter or affect
the authority conferred under section
85, including as interpreted in this
rulemaking.48 For these reasons, the
OCC disagrees with the commenters
who argued that section 25b(f) does not
exempt rules interpreting section 85.49
The OCC thus concludes that this
rulemaking is not subject to the
requirements of section 25b.50 Because
the OCC concludes that these
requirements are inapplicable, the OCC
declines to address comments regarding
how to comply with these requirements.
45 See
Smiley, 517 U.S. 735; Marquette, 439 U.S.
299.
46 Smiley,
517 U.S. at 744 (emphasis in original).
these same reasons, the OCC is not
persuaded by commenters who argued that sections
25b(b)(2), (e), and (h)(2) preclude the agency from
issuing this rule.
48 Section 25b(f) also supports the OCC
conclusion that sections 25b(b)(2), (e), and (h)(2) do
not preclude the agency from issuing this rule.
49 This conclusion is supported by consideration
of the parallel authority conferred under 12 U.S.C.
1831d, which is construed in pari materia with
section 85. See, e.g., Greenwood Tr. Co. v.
Massachusetts, 971 F.2d 818, 827 (1st Cir. 1992);
FDIC General Counsel’s Opinion No. 11, Interest
Charges by Interstate State Banks, 63 FR 27282
(May 18, 1998). Congress did not subject Federal
Deposit Insurance Corporation (FDIC)
interpretations of section 1831d to section 25b or
equivalent requirements. Given that sections 1831d
and 85 are construed in pari materia, it would be
incongruous to conclude that an OCC rule
interpreting section 85 would be subject to the
requirements of section 25b while a substantively
identical FDIC rule issued pursuant to parallel
statutory authority would not. The same argument
can be made regarding section 1463(g).
50 Some commenters also argued that section 25b
applies to this rulemaking because the OCC cited
sections 24(Third) and 24(Seventh) in its proposal.
As explained above, the OCC does not cite these
statutes as direct authority for this rule or for their
preemptive effect.
47 For
E:\FR\FM\02JNR1.SGM
02JNR1
33534
Federal Register / Vol. 85, No. 106 / Tuesday, June 2, 2020 / Rules and Regulations
Administrative Procedure Act
Several commenters argued that the
OCC’s actions violate the APA. First,
commenters argued that the OCC is
acting ‘‘in excess of statutory
jurisdiction, authority, or
limitations,’’ 51 because it lacks
authority to issue the rule. As described
in detail above, the OCC disagrees and
concludes that it has the authority to
issue this rule under sections 85 and
1463(g).
Second, several commenters argued
that the OCC is acting ‘‘without
observance of procedure required by
law’’52 in violation of the APA because
it did not comply with the procedural
requirements in section 25b. As
explained above, the OCC concludes
that these provisions do not apply.
Finally, commenters argued that the
OCC’s proposal is arbitrary and
capricious, including because it did not
provide evidence of the problem it seeks
to remedy. The OCC disagrees. The
APA’s arbitrary and capricious standard
requires an agency to make rational and
informed decisions based on the
information before it.53 The primary
problem the OCC seeks to address is the
legal uncertainty resulting from the
Madden decision, and the OCC has
observed considerable evidence of this
uncertainty.54 The OCC understands
that its rule may not resolve all legal
uncertainty for every loan transfer, as at
least one opposing commenter noted.
However, resolving every potential
uncertainty is not a prerequisite for the
OCC to take this narrowly tailored
action to address a discrete source of
uncertainty.55
Relying on this clear evidence of
current legal uncertainty, the OCC has
made a rational and informed decision
to issue this rule.
51 5
U.S.C. 706(2)(C).
at 706(2)(D).
53 Ass’n of Private Colls. & Univs. v. Duncan, 870
F. Supp. 2d 133, 154 (D.D.C. 2012); see Motor
Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 52 (1983) (‘‘The agency
must explain the evidence which is available, and
must offer a ‘rational connection between the facts
found and the choice made.’’’ (quoting Burlington
Truck Lines, Inc. v. United States, 371 U.S. 156, 168
(1962))).
54 For example, there are ongoing cases
challenging the interest charged on securitized
credit card receivables, with competing arguments
regarding whether Madden applies in that
circumstance. Similarly, the application of Madden
to inter-bank loan transfers remains unresolved.
Comments on the NPR from industry
representatives also evidence the existence of legal
uncertainty post-Madden.
55 See Taylor v. Fed. Aviation Admin., 895 F.3d
56, 68 (2018); cf. Smiley, 517 U.S. at 743 (stating
‘‘that there was good reason for the Comptroller to
promulgate the new regulation, in order to
eliminate uncertainty and confusion’’).
khammond on DSKJM1Z7X2PROD with RULES
52 Id.
VerDate Sep<11>2014
16:47 Jun 01, 2020
Jkt 250001
Furthermore, the OCC is not required
to develop or adduce empirical or other
data to support its conclusions about the
importance of issuing this rule, nor
must the OCC wait for the additional
problems to materialize before taking
action.56 Instead, the OCC may rely on
its supervisory expertise to anticipate
and address the problems that may arise
from Madden and the legal uncertainty
it has created.57 As described above, the
OCC believes that its interpretation
promotes safety and soundness and may
facilitate responsible lending and
efficient and effective bank operations.
Commenters also argued that the rule
is arbitrary and capricious because it
failed to consider the potential negative
consequences that would, they argued,
result from the rule, including the
facilitation of predatory lending through
‘‘rent-a-charter relationships.’’ The OCC
disagrees. The agency takes the risks
created by predatory lending, including
through third-party relationships, very
seriously but, for the reasons discussed
below, does not believe that that this
rule will facilitate predatory lending
through these relationships.
Predatory Lending
Some commenters argued that the
proposal would facilitate predatory
lending by promoting rent-a-charter
relationships that allow nonbanks to
evade state law and that it would
reverse the OCC’s historical opposition
to these relationships. These
commenters asserted that the proposal
would undermine or eliminate state
interest caps, a vital tool that states use
to protect residents against predatory
lending.
The OCC disagrees with these
commenters’ criticisms of this
56 Stilwell v. Office of Thrift Supervision, 569
F.3d 514, 519 (D.C. Cir. 2009) (‘‘The APA imposes
no general obligation on agencies to produce
empirical evidence. . . . Moreover, agencies can, of
course, adopt prophylactic rules to prevent
potential problems before they arise. . . . OTS
based its proposed rule on its long experience of
supervising mutual savings associations; its view
found support in various comments submitted in
response to the proposed rule.’’); Chamber of
Commerce of U.S. v. SEC, 412 F.3d 133, 142 (D.C.
Cir. 2005) (holding that the SEC did not have to
conduct an empirical study in support of its
rulemaking where it based its decision on ‘‘its own
and its staff’s experience, the many comments
received, and other evidence, in addition to the
limited and conflicting empirical evidence’’).
57 FCC v. WNCN Listeners Guild, 450 U.S. 582,
595–96 (1981) (granting deference to the agency’s
‘‘forecast of the direction in which future public
interest lies’’); U.S. Telecom Ass’n v. FCC, 825 F.3d
674, 732 (D.C. Cir. 2016) (‘‘[A]n agency’s predictive
judgments about areas that are within the agency’s
field of discretion and expertise are entitled to
particularly deferential review, as long as they are
reasonable.’’ (emphasis in original) (quoting
EarthLink, Inc. v. FCC, 462 F.3d 1, 12 (D.C. Cir.
2006)).
PO 00000
Frm 00008
Fmt 4700
Sfmt 4700
rulemaking. As made clear above, the
OCC is issuing the rule to clarify its
position with regard to the proper
interpretation of sections 85 and
1463(g)(1), which relates to a core
element of banks’ ability to engage in
safe and sound banking: The ability to
transfer loans. However, the OCC also
notes, as many commenters did, that the
agency has consistently opposed
predatory lending, including through
relationships between banks and third
parties. Nothing in this rulemaking in
any way alters the OCC’s strong position
on this issue, nor does it rescind or
amend any related OCC issuances.
The OCC also understands that
appropriate third-party relationships
play an important role in banks’
operations and the economy, and the
OCC has issued guidance on how banks
can appropriately manage the risks
associated with these relationships.58
Because commenters are concerned
that the rule would undermine state
interest caps, it is also important to
emphasize that sections 85 and 1463(g)
incorporate, rather than eliminate, these
state caps. As noted above, these
statutes require that a bank refer to, and
comply with, the interest cap
established by the laws of the state
where the bank is located. Thus,
disparities between the interest caps
applicable to particular bank loans
result primarily from differences in the
state laws that impose these caps. This
rule does not change that.
IV. Regulatory Text
The OCC proposed to amend 12 CFR
7.4001 and 12 CFR 160.110 by adding
a new paragraph, which would provide
that interest on a loan that is
permissible under sections 85 and
1463(g)(1), respectively, shall not be
affected by the sale, assignment, or other
transfer of the loan. As the proposal
explained, this rule would expressly
codify what the OCC and the banking
industry have always believed and
address the legal confusion about the
impact of a transfer on the permissible
interest. The proposal also noted that
this rule would not address which
entity is the true lender when a bank
transfers a loan to a third party.
The OCC received several comments
on its proposed regulatory text.
Commenters requested several clarifying
changes, including recommendations to
(1) specifically reference non-bank third
58 See OCC Bulletin 2014–37, Consumer Debt
Sales: Risk Management Guidance (Aug. 4, 2014);
OCC Bulletin 2013–29, Third-Party Relationships:
Risk Management Guidance (Oct. 30, 2013); OCC
Bulletin 2020–10, Third-Party Relationships:
Frequently Asked Questions to Supplement OCC
Bulletin 2013–29 (Mar. 5, 2020).
E:\FR\FM\02JNR1.SGM
02JNR1
khammond on DSKJM1Z7X2PROD with RULES
Federal Register / Vol. 85, No. 106 / Tuesday, June 2, 2020 / Rules and Regulations
parties in the regulatory text; (2) ensure
that the rule applies to transfers of
partial interests in loans; and (3) clarify
that the rule does not affect the
applicability of other state law
requirements, including licensing
requirements. The OCC does not believe
any changes to the regulatory text are
necessary to address these
recommendations because the OCC
reads the regulatory text to be consistent
with these recommendations.
In addition, a commenter requested
that the OCC clarify that the rule applies
to all price terms of a loan. The OCC’s
rule applies to ‘‘interest,’’ as that term
is defined in 12 CFR 7.4001(a) and 12
CFR 160.110(a).
Several commenters also requested
that the OCC address who is the true
lender in its regulatory text. One
commenter requested that the OCC
specifically include regulatory text
providing that the rule does not affect
the determination of which entity is the
true lender. The OCC reiterates that this
rule does not address which entity is the
true lender but does not believe it is
necessary to specifically include a
statement to this effect in the regulatory
text. Another commenter requested that
the OCC include a proviso providing
that the rule only applies when the bank
is the true lender, as determined by the
law of the state where the borrower
resides. Because the rule only applies to
bank loans that are permissible under
section 85 or 1463(g), the OCC does not
believe that adding this proviso is
necessary. Other commenters requested
that the OCC establish a test for
determining when the bank is the true
lender. This would raise issues distinct
from, and outside the scope of, this
narrowly tailored rulemaking.
Finally, several commenters argued
that the OCC and the FDIC should
coordinate and harmonize their
respective regulatory texts, which will
help minimize any differences in court
decisions.59 The OCC’s proposed
regulatory text was narrowly tailored to
address the specific legal uncertainty
created by Madden, and the OCC
believes this regulatory text best
implements its interpretation of the
statutory language in sections 85 and
1463(g)(1). Accordingly, the OCC adopts
the rule as proposed. However, the OCC
notes that it intends that its rule will
function in the same way as the FDIC’s
proposed regulatory text would, which
59 On December 6, 2019, the FDIC proposed a
similar rule based on section 1831d. Federal
Interest Rate Authority, 84 FR 66845.
VerDate Sep<11>2014
16:47 Jun 01, 2020
Jkt 250001
is consistent with interpreting sections
85 and 1831d in pari materia.60
V. Regulatory Analyses
Paperwork Reduction Act
In accordance with the requirements
of the Paperwork Reduction Act of 1995
(PRA), 44 U.S.C. 3501 et seq., the OCC
may not conduct or sponsor, and
respondents are not required to respond
to, an information collection unless it
displays a currently valid Office of
Management and Budget (OMB) control
number. The OCC has reviewed the
final rule and determined that it would
not introduce any new or revise any
existing collection of information
pursuant to the PRA. Therefore, no PRA
submission will be made to OMB.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA),
5 U.S.C. 601 et seq., requires an agency,
in connection with a final rule, to
prepare a Final Regulatory Flexibility
Analysis describing the impact of the
rule on small entities (defined by the
Small Business Administration (SBA)
for purposes of the RFA to include
commercial banks and savings
institutions with total assets of $600
million or less and trust companies with
total assets of $41.5 million or less) or
to certify that the final rule would not
have a significant economic impact on
a substantial number of small entities.
The OCC currently supervises
approximately 745 small entities.61 The
ability to transfer a loan is important to
all banks, so the OCC expects that all of
these small entities would be impacted
by this rule. However, the rule does not
contain any new recordkeeping,
reporting, or significant compliance
requirements. Therefore, the OCC
anticipates that costs, if any, will be de
60 This discussion refers specifically to 12 CFR
331.4(e) of the FDIC’s proposed rule, which would
address the impact a loan transfer has on
permissible interest. The FDIC’s proposed
regulatory text also would address additional
subsequent events, including changes in state law
and changes in the relevant commercial paper rate.
Although the OCC’s rule does not address these
circumstances, the OCC believes that the result
would generally be the same for loans made by
OCC-regulated banks.
61 The OCC bases its estimate of the number of
small entities on the SBA’s size thresholds for
commercial banks and savings institutions, and
trust companies, which are $600 million and $41.5
million, respectively. Consistent with the General
Principles of Affiliation, 13 CFR 121.103(a), the
OCC counts the assets of affiliated financial
institutions when determining if the OCC should
classify an OCC-supervised institution as a small
entity. The OCC uses December 31, 2019, to
determine size because a ‘‘financial institution’s
assets are determined by averaging the assets
reported on its four quarterly financial statements
for the preceding year.’’ See footnote 8 of the SBA’s
Table of Size Standards.
PO 00000
Frm 00009
Fmt 4700
Sfmt 4700
33535
minimis and certifies that this rule will
not have a significant economic impact
on a substantial number of small
entities. Accordingly, a Final Regulatory
Flexibility Analysis is not required.
Unfunded Mandates Reform Act
Pursuant to the Unfunded Mandates
Reform Act of 1995, 2 U.S.C. 1532, the
OCC considers whether a final rule
includes a Federal mandate that may
result in the expenditure by State, local,
and tribal governments, in the aggregate,
or by the private sector, of $100 million
or more in any one year (adjusted for
inflation). The final rule does not
impose new mandates. Therefore, the
OCC concludes that implementation of
the final rule would not result in an
expenditure of $100 million (adjusted
for inflation) or more annually by State,
local, and tribal governments, or by the
private sector.
Riegle Community Development and
Regulatory Improvement Act
Pursuant to section 302(a) of the
Riegle Community Development and
Regulatory Improvement Act of 1994
(RCDRIA), 12 U.S.C. 4802(a), in
determining the effective date and
administrative compliance requirements
for new regulations that impose
additional reporting, disclosure, or other
requirements on insured depository
institutions, the OCC must consider,
consistent with principles of safety and
soundness and the public interest, any
administrative burdens that such
regulations would place on depository
institutions, including small depository
institutions, and customers of
depository institutions, as well as the
benefits of such regulations. In addition,
section 302(b) of RCDRIA, 12 U.S.C.
4802(b), requires new regulations and
amendments to regulations that impose
additional reporting, disclosures, or
other new requirements on insured
depository institutions generally to take
effect on the first day of a calendar
quarter that begins on or after the date
on which the regulations are published
in final form. This rule imposes no
additional reporting, disclosure, or other
requirements on insured depository
institutions, and therefore, neither
section 302(a) or 302(b) is applicable to
this rule.
Congressional Review Act
For purposes of Congressional Review
Act (CRA), 5 U.S.C. 801 et seq., the
Office of Information and Regulatory
Affairs (OIRA) of the OMB determines
whether a final rule is a ‘‘major rule,’’
as that term is defined at 5 U.S.C.
804(2). OIRA has determined that this
rule is not a ‘‘major rule.’’
E:\FR\FM\02JNR1.SGM
02JNR1
33536
Federal Register / Vol. 85, No. 106 / Tuesday, June 2, 2020 / Rules and Regulations
As required by the CRA, the OCC will
submit the final rule and other
appropriate reports to Congress and the
Government Accountability Office for
review.
Administrative Procedure Act
Brian P. Brooks,
Acting Comptroller of the Currency.
[FR Doc. 2020–11963 Filed 6–1–20; 8:45 am]
The APA, 5 U.S.C. 551 et seq.,
generally requires that a final rule be
published in the Federal Register not
less than 30 days before its effective
date. This final rule will be effective 60
days after publication in the Federal
Register, which meets the APA’s
effective date requirement.
BILLING CODE 4810–33–P
List of Subjects
[Docket No. FAA–2020–0085; Airspace
Docket No. 20–ASO–2]
12 CFR Part 7
12 CFR Part 160
Savings associations, Interest, Usury.
Office of the Comptroller of the
Currency
PART 7—ACTIVITIES AND
OPERATIONS
1. The authority citation for part 7
continues to read as follows:
■
Authority: 12 U.S.C. 1 et seq., 25b, 29, 71,
71a, 92, 92a, 93, 93a, 95(b)(1), 371, 371d, 481,
484, 1463, 1464, 1465, 1818, 1828(m) and
5412(b)(2)(B).
Subpart D—Preemption
2. Section 7.4001 is amended by
adding paragraph (e) to read as follows:
■
§ 7.4001 Charging interest by national
banks at rates permitted competing
institutions; charging interest to corporate
borrowers.
*
*
*
*
*
(e) Transferred loans. Interest on a
loan that is permissible under 12 U.S.C.
85 shall not be affected by the sale,
assignment, or other transfer of the loan.
PART 160—LENDING AND
INVESTMENT
3. The authority citation for part 160
continues to read as follows:
■
Authority: 12 U.S.C. 1462a, 1463, 1464,
1467a, 1701j–3, 1828, 3803, 3806,
5412(b)(2)(B); 42 U.S.C. 4106.
4. Section 160.110 is amended by
adding paragraph (d) to read as follows:
■
§ 160.110 Most favored lender usury
preemption for all savings associations.
*
*
*
*
(d) Transferred loans. Interest on a
loan that is permissible under 12 U.S.C.
VerDate Sep<11>2014
16:47 Jun 01, 2020
Jkt 250001
Federal Aviation Administration
14 CFR Part 71
Amendment of Class D Airspace,
Jacksonville NAS, FL; and,
Amendment of Class D and Class E
Airspace, Mayport, FL
Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
AGENCY:
For the reasons set out in the
preamble, the OCC amends 12 CFR parts
7 and 160 as follows.
*
DEPARTMENT OF TRANSPORTATION
RIN 2120–AA66
National banks, Interest, Usury.
khammond on DSKJM1Z7X2PROD with RULES
1463(g)(1) shall not be affected by the
sale, assignment, or other transfer of the
loan.
This action amends Class D
airspace for Jacksonville NAS, FL, by
updating the name and geographical
coordinates of Jacksonville NAS
(Towers Field) (previously Jacksonville
NAS) and Herlong Recreational Airport
(previously Herlong Airport). This
action would also amend Class D
airspace and Class E airspace designated
as an extension to Class D or E surface
area by updating the name and
geographic coordinates of Mayport
Naval Station (ADM David L McDonald
Field), (previously Mayport Naval Air
Station), and the name and geographic
coordinates of Jacksonville Executive
Airport at Craig, (previously Craig
Municipal Airport). Controlled airspace
is necessary for the safety and
management of instrument flight rules
(IFR) operations in the area. This action
also would make an editorial change
replacing the term Airport/Facility
Directory with the term Chart
Supplement in the legal descriptions of
associated Class D and E airspace.
DATES: Effective 0901 UTC, July 16,
2020. The Director of the Federal
Register approves this incorporation by
reference action under Title 1 Code of
Federal Regulations part 51, subject to
the annual revision of FAA Order
7400.11 and publication of conforming
amendments.
ADDRESSES: FAA Order 7400.11D,
Airspace Designations and Reporting
Points, and subsequent amendments can
be viewed on line at https://
www.faa.gov/air_traffic/publications/.
For further information, you can contact
SUMMARY:
PO 00000
Frm 00010
Fmt 4700
Sfmt 4700
the Airspace Policy Group, Federal
Aviation Administration, 800
Independence Avenue SW, Washington,
DC 20591; telephone: (202) 267–8783.
The Order is also available for
inspection at the National Archives and
Records Administration (NARA). For
information on the availability of FAA
Order 7400.11D at NARA, email
fedreg.legal@nara.gov or go to https://
www.archives.gov/federal-register/cfr/
ibr-locations.html.
John
Fornito, Operations Support Group,
Eastern Service Center, Federal Aviation
Administration, 1701 Columbia Avenue,
College Park, GA 30337; telephone (404)
305–6364.
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
Authority for This Rulemaking
The FAA’s authority to issue rules
regarding aviation safety is found in
Title 49 of the United States Code.
Subtitle I, Section 106 describes the
authority of the FAA Administrator.
Subtitle VII, Aviation Programs,
describes in more detail the scope of the
agency’s authority. This rulemaking is
promulgated under the authority
described in Subtitle VII, Part A,
Subpart I, Section 40103. Under that
section, the FAA is charged with
prescribing regulations to assign the use
of airspace necessary to ensure the
safety of aircraft and the efficient use of
airspace. This regulation is within the
scope of that authority as it amends
Class D and E airspace in Jacksonville
NAS, FL, and Mayport, FL, to support
IFR operations in the area.
History
The FAA published a notice of
proposed rulemaking in the Federal
Register (85 FR 8212, February 13,
2020) for Docket No. FAA–2020–0085,
to amend Class D airspace for
Jacksonville NAS, FL by updating the
name and geographical coordinates of
the airport, and the name of Herlong
Recreational Airport. The FAA also
proposed to update the geographic
coordinates of Mayport NS (ADM David
L McDonald Field), Mayport, FL, under
Class D airspace and Class E surface
airspace designated as an extension to a
Class D surface area, as well as the name
and geographic coordinates of
Jacksonville Executive Airport at Craig.
In addition, the FAA proposed to
replace the outdated term Airport/
Facility Directory with the term Chart
Supplement in the associated Class D
airspace and Class E surface airspace
designated as an extension to a Class D
surface area in the legal descriptions for
E:\FR\FM\02JNR1.SGM
02JNR1
Agencies
[Federal Register Volume 85, Number 106 (Tuesday, June 2, 2020)]
[Rules and Regulations]
[Pages 33530-33536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11963]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Parts 7 and 160
[Docket ID OCC-2019-0027]
RIN 1557-AE73
Permissible Interest on Loans That Are Sold, Assigned, or
Otherwise Transferred
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: Federal law establishes that national banks and savings
associations (banks) may charge interest on loans at the maximum rate
permitted to any state-chartered or licensed lending institution in the
state where the bank is located. In addition, banks are generally
authorized to sell, assign, or otherwise transfer (transfer) loans and
to enter into and assign loan contracts. Despite these authorities,
recent developments have created legal uncertainty about the ongoing
permissibility of the interest term after a bank transfers a loan. This
rule clarifies that when a bank transfers a loan, the interest
permissible before the transfer continues to be permissible after the
transfer.
DATES: The final rule is effective on August 3, 2020.
FOR FURTHER INFORMATION CONTACT: Andra Shuster, Senior Counsel, Karen
McSweeney, Special Counsel, or Priscilla Benner, Senior Attorney, Chief
Counsel's Office, (202) 649-5490, for persons who are deaf or hearing
impaired, TTY, (202) 649-5597, Office of the Comptroller of the
Currency, 400 7th Street SW, Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
I. Background
On November 21, 2019, the OCC published a notice of proposed
rulemaking (proposal or NPR) to codify its conclusion that when a
national bank or savings association (bank) sells, assigns, or
otherwise transfers (transfers) a loan, interest permissible before the
transfer continues to be permissible after the transfer.\1\
---------------------------------------------------------------------------
\1\ Permissible Interest on Loans That Are Sold, Assigned, or
Otherwise Transferred, 84 FR 64229 (Nov. 21, 2019).
---------------------------------------------------------------------------
As the proposal explained, a bank may charge interest on a loan at
the maximum rate permitted to any state-chartered or licensed lending
institution in the state where the bank is located. In addition, banks
are generally authorized to transfer their loans and to enter into and
assign loan contracts. Despite these authorities, recent developments
have created legal uncertainty about the ongoing permissibility of the
interest term after a bank transfers a loan.
Consistent with the proposal, this regulation addresses that legal
uncertainty by clarifying and reaffirming the longstanding
understanding that a bank may transfer a loan without affecting the
permissible interest term. Based on its supervisory experience, the OCC
believes that unresolved legal uncertainty about this issue may disrupt
banks' ability to serve consumers, businesses, and the broader economy
efficiently and effectively, particularly in times of economic stress.
The OCC also believes that enhanced legal certainty may facilitate
responsible lending by banks, including in circumstances when access to
credit is especially critical.
II. Overview of Comments
The OCC received over sixty comments on its NPR, including comments
from industry trade associations, nonbank lenders, community groups,
academics, state government representatives, and members of the public.
Many commenters expressed support for the rule. Some stated that the
legal uncertainty discussed in the proposal has had negative effects on
the primary and secondary markets for bank loans. They argued that
legal certainty regarding a bank's ability to transfer non-usurious
loans without affecting the interest term would benefit banks and
markets, including for liquidity and diversification purposes. Many
supporting commenters also agreed that the OCC has the authority to
address this issue by regulation and that the proposal reflected a
permissible interpretation of relevant Federal banking law.
The OCC also received comments opposed to the rule, which raised
both legal and policy concerns. Many commenters argued that the OCC
does not have the authority to issue this regulation. Several also
argued that the OCC's proposal was subject to, but did not comply with,
the substantive and procedural provisions in 12 U.S.C. 25b. Opposing
commenters also questioned the need for the rule, stating there is no
evidence that legal uncertainty has had negative effects on banks or
markets. Relying on these and other arguments, some commenters also
argued that the OCC's proposal did not comply with the Administrative
Procedure Act (APA).\2\ Finally, certain commenters stated that the NPR
would facilitate predatory lending by promoting rent-a-charter
relationships and allowing nonbanks to evade otherwise applicable state
law.
---------------------------------------------------------------------------
\2\ 5 U.S.C. 551 et seq.
---------------------------------------------------------------------------
Two commenters provided empirical studies analyzing the effects of
the Madden v. Midland Funding, LLC \3\ decision (Madden), including
evidence that Madden restricted access to credit for higher-risk
borrowers in states
[[Page 33531]]
within the Second Circuit and that it caused a rise in personal
bankruptcies due to a decline in marketplace lending, especially for
low-income households.
---------------------------------------------------------------------------
\3\ 786 F.3d 246 (2d Cir. 2015). In this case, the U.S. Court of
Appeals for the Second Circuit held that a purchaser of a loan
originated by a national bank could not charge interest at the rate
permissible for the bank if that rate would be impermissible under
the lower usury cap applicable to the purchaser.
---------------------------------------------------------------------------
III. Analysis
As noted in the proposal, the OCC is undertaking this rulemaking to
clarify that a bank may transfer a loan without impacting the
permissibility or enforceability of the interest term in the loan
contract, thereby resolving the legal uncertainty created by the Madden
decision. To support this conclusion, the proposal discussed a bank's
authority to lend money, to make contracts, to charge interest
consistent with the laws of the state in which it is located, and to
subsequently transfer that loan and assign the loan contract. It also
discussed the principles of ``valid-when-made'' and the assignability
of contracts, which, if applied to the transfer of a loan, would
generally produce an outcome consistent with the OCC's conclusion.
Authority
As noted above, although many supporting commenters expressly
agreed that the OCC may promulgate this rule, many opposing commenters
questioned the OCC's authority, relying on several principal arguments:
Certain Federal statutes (12 U.S.C. 85 and 1463(g)) are
unambiguous and only address the interest a bank may charge. Because
these statutes are unambiguous, the OCC cannot invoke National Cable &
Telecommunications Ass'n v. Brand X internet Services \4\ (Brand X) to
overturn the result in Madden.
---------------------------------------------------------------------------
\4\ 545 U.S. 967 (2005).
---------------------------------------------------------------------------
Valid-when-made is not a historical usury principle that
supports the OCC's proposal.
There is no basis to conclude that Federal law should
preempt state usury laws based on a bank's power to assign contracts.
There is no basis to conclude that Federal law should
preempt state usury laws based on a bank's authority to transfer loans.
The OCC has carefully considered these comments and believes there
is ample authority to issue this regulation. Federal law grants
national banks broad authority to engage in the business of banking.\5\
Specifically relevant here, the National Bank Act (NBA) provides
national banks with enumerated powers, including the ability to lend
money, and ``all such incidental powers as shall be necessary to carry
on the business of banking.'' \6\ By statute, national banks also have
the authority to transfer their loans.\7\
---------------------------------------------------------------------------
\5\ The OCC will discuss the authority to issue this rule for
national banks before discussing the authority to issue this rule
for savings associations.
\6\ 12 U.S.C. 24(Seventh) and 371.
\7\ 12 U.S.C. 24(Seventh) and 371; 12 CFR 7.4008 and 34.3; see
also Planters' Bank of Miss. v. Sharp, 47 U.S. 301, 322 (1848)
(concluding that the authority to transfer a loan is a ``necessarily
implied'' corollary to the authority to make a loan). It should be
noted that rights authorized by a statute need not be express--they
are often implicit in the other rights given by the statute. See,
e.g., Franklin Nat'l Bank v. New York, 347 U.S. 373, 377-78 (1954)
(concluding that the right to accept savings deposits implicitly
includes the right to advertise).
---------------------------------------------------------------------------
Furthermore, the NBA expressly authorizes national banks to make
contracts.\8\ Among the essential rights associated with this power is
the right to assign some or all of the benefits of a contract to a
third party.\9\ Generally, all contractual rights may be assigned ``in
the absence of clear language expressly prohibiting the assignment and
unless the assignment would materially change the duty of the obligor
or materially increase the obligor's burden or risk under contract or
the contract involves obligations of a personal nature.''\10\ In
addition, contractual rights generally may not be assigned if the
assignment is ``specifically forbidden by statute or . . . void as
against public policy.'' \11\ All ordinary business contracts are
assignable, and a contract for money due in the future is among the
types of contracts that normally may be assigned.\12\ Therefore, a
national bank's authority to enter into loan contracts pursuant to 12
U.S.C. 24(Third) necessarily includes the authority to assign such loan
contracts.\13\
---------------------------------------------------------------------------
\8\ 12 U.S.C. 24(Third).
\9\ Restatement (Second) of Contracts section 317 (Am. Law Inst.
1981).
\10\ 29 Williston on Contracts section 74:10 (4th ed.) (footnote
omitted).
\11\ Id. at section 74:23.
\12\ See Bank of Am., N.A. v. Rice, 780 S.E.2d 873 (N.C. Ct.
App. 2015).
\13\ See also Franklin Nat'l Bank, 347 U.S. at 377-78.
---------------------------------------------------------------------------
When a national bank exercises its authority to lend money and
enters into a loan contract, the NBA authorizes the bank to ``charge on
any loan . . . interest at the rate allowed by the laws of the State .
. . where the bank is located.'' \14\ Section 85 is the sole provision
that governs the interest permissible on a loan made by a national
bank, and it operates primarily by incorporating the usury laws of the
state in which the bank is located. Section 85 and 12 U.S.C. 86, which
establishes the remedy for a violation of section 85, constitute the
comprehensive statutory scheme governing the interest permitted on
national bank loans.\15\
---------------------------------------------------------------------------
\14\ 12 U.S.C. 85. Section 85 also allows a national bank to
charge ``1 per centum in excess of the discount rate on ninety-day
commercial paper in effect at the Federal reserve bank in the
Federal reserve district where the bank is located.'' Id.
\15\ See Beneficial Nat'l Bank v. Anderson, 539 U.S. 1 (2003).
---------------------------------------------------------------------------
The NBA thus clearly establishes that a national bank may (1) lend
money, pursuant to a loan contract, with an interest term that is
consistent with the laws of the state in which the bank is located and
(2) subsequently transfer that loan and assign the loan contract.
However, the comprehensive statutory scheme regarding interest
permitted on national bank loans does not expressly address how the
exercise of a national bank's authority to transfer a loan and assign
the loan contract affects the interest term. When Congress enacted the
NBA, it understood that loan transfers were a fundamental aspect of the
business of banking and that such transfers would play an important
role in the national banking system.\16\ Therefore, section 85's
silence in this regard is ``conspicuous[ ],'' \17\ and the OCC may
interpret section 85 to resolve this silence.\18\
---------------------------------------------------------------------------
\16\ See Planters' Bank, 47 U.S. at 323 (``[Banks] must be able
to assign or sell [their] notes when necessary and proper, as, for
instance, to procure more specie in an emergency, or return an
unusual amount of deposits withdrawn, or pay large debts for a
banking-house.'').
\17\ Baldwin v. United States, 921 F.3d 836, 842 (9th Cir.
2019).
\18\ See Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc.,
467 U.S. 837, 843 (1984) (``[I]f the statute is silent or ambiguous
with respect to the specific issue, the question for the court is
whether the agency's answer is based on a permissible construction
of the statute.''); see also Robinson v. Shell Oil Co., 519 U.S.
337, 341 (1997) (``The plainness or ambiguity of statutory language
is determined by reference to the language itself, the specific
context in which that language is used, and the broader context of
the statute as a whole.'') (emphasis added); Smiley v. Citibank
(S.D.), N.A., 517 U.S. 735 (1996) (Smiley) (deferring to the OCC's
reasonable interpretation of section 85's ambiguity with respect to
meaning of ``interest'').
---------------------------------------------------------------------------
The OCC is not persuaded by commenters who argued that 12 U.S.C.
1735f-7a forecloses an argument that section 85's silence is ambiguous
as to its application to loan transfers. These commenters argued that
section 1735f-7a preempts state usury laws and expressly applies to
originations and sales of certain loans, and therefore, Congress must
be presumed to have intentionally omitted similar language in section
85, thereby precluding the application of section 85 to loan transfers.
These commenters argued that this presumption is particularly strong,
because several statutory parallels to section 85 were enacted at the
same time as section 1735f-7a. At least one commenter also cited 12
U.S.C. 3803 to
[[Page 33532]]
make a similar argument.\19\ The OCC disagrees. First, while the OCC
agrees that section 1735f-7a applies to certain loans that have been
transferred,\20\ this is not by virtue of express statutory language
addressing loan transfers. Rather, section 1735f-7a implicitly applies
to transferred loans, notwithstanding its silence on this issue, for
reasons similar to why the OCC concludes that section 85 applies to
transferred loans. Moreover, even if section 1735f-7a expressly applied
to loan transfers, it would further highlight the ambiguity created by
the silence in section 85.\21\ As courts have stated, affirmative
language in one provision (section 1735f-7a) and statutory silence in
another (section 85) can indicate that Congress intended to provide the
administering agency (the OCC) with discretion to interpret the latter
statute.\22\
---------------------------------------------------------------------------
\19\ This statute authorizes housing creditors to make,
purchase, and enforce alternative mortgage transactions and
expressly preempts certain state laws.
\20\ See S. Rep. No. 96-368, at 19 (1979) (``In connection with
the provisions in this section, it is the Committee's intent that
loans originated under this usury exemption will not be subject to
claims of usury even if they are later sold to an investor who is
not exempt under this section.'').
\21\ This same conclusion applies to the extent that section
3803 expressly addresses transferred loans.
\22\ Catawba Cty., N.C. v. EPA, 571 F.3d 20, 36 (D.C. Cir. 2009)
(``Silence . . . may signal permission rather than proscription.'');
Cheney R. Co., Inc. v. ICC, 902 F.2d 66, 69 (D.C. Cir. 1990)
(``[T]he contrast between Congress's mandate in one context with its
silence in another suggests not a prohibition but simply a decision
not to mandate any solution in the second context, i.e., to leave
the question to agency discretion. Such a contrast (standing alone)
can rarely if ever be the `direct[]' congressional answer required
by Chevron.''); Clinchfield Coal Co. v. Fed. Mine Safety & Health
Review Comm'n, 895 F.2d 773, 779 (D.C. Cir. 1990) (``[W]here an
agency is empowered to administer the statute, Congress may have
meant that in the second context the choice should be up to the
agency.'').
---------------------------------------------------------------------------
After careful consideration, the OCC continues to conclude that it
is appropriate to resolve the silence in section 85 by providing that
when a bank transfers a loan, interest permissible before the transfer
continues to be permissible after the transfer.
Well before the passage of the NBA, the Supreme Court recognized
one of the ``cardinal rules in the doctrine of usury'' and described it
as follows: ``a contract, which, in its inception, is unaffected by
usury, can never be invalidated by any subsequent usurious
transaction.'' \23\ Courts have also held the inverse--a loan that is
usurious at its inception remains usurious until purged by a new
contract.\24\ Notwithstanding comments to the contrary, the OCC
continues to read the cases cited in the proposal, particularly when
considered in light of the court decisions establishing the inverse, to
support a broad proposition: The usurious or non-usurious character of
a contract endures through assignment.\25\
---------------------------------------------------------------------------
\23\ See Nichols v. Fearson, 32 U.S. (7 Pet.) 103, 109 (1833);
see also Gaither v. Farmers' & Mechs.' Bank of Georgetown, 26 U.S.
(1 Pet.) 37, 43 (1828).
\24\ See, e.g., Auctus Fund, LLC v. Sunstock, Inc., 405 F. Supp.
3d 218 (D. Mass. 2019); Heide v. Hunter Hamilton Ltd. P'ship, 826 F.
Supp. 224 (E.D. Mich. 1993); Matthews v. Tripp, 285 Mich. 705
(1938); Westman v. Dye, 214 Cal. 28 (1931); Tribble v. Anderson, 63
Ga. 31 (1879).
\25\ This reading has been endorsed by the Solicitor General of
the United States. See Brief for the United States as Amicus Curiae,
Midland Funding, LLC v. Madden, No. 15-610 (May 24, 2016). Many
commenters also support this reading.
---------------------------------------------------------------------------
The OCC's interpretation is also supported by national banks'
ability to assign contracts, as discussed above. Commenters argued that
the interest term on a loan should be treated differently from other
loan terms, including because it derives from a national bank's status
under Federal law. For reasons stated in the proposal and herein, the
OCC does not agree that the interest term of the contract should be
treated differently, nor does it believe that the enforceability of an
assigned interest term should depend on the licensing status of the
assignor or assignee.\26\ Upon assignment, the third-party assignee
steps into the shoes of the national bank and may enforce the rights
the bank assigned to it under the contract.\27\ To effectively assign a
loan contract and allow the assignee to step into the shoes of the
national bank assignor, a permissible interest term must remain
permissible and enforceable notwithstanding the assignment.\28\ The
loan should not be considered usurious after the assignment simply
because a third party is enforcing the contractually agreed-upon
interest term.\29\ Furthermore, an assignment should not change the
borrower's obligation to repay in any material way.\30\
---------------------------------------------------------------------------
\26\ See Olvera v. Blitt & Gaines, P.C., 431 F.3d 285, 286, 289
(7th Cir. 2005) (``[T]he assignee of a debt . . . is free to charge
the same interest rate that the assignor . . . charged the debtor .
. . even if the assignee does not have a license that expressly
permits the charging of a higher rate.''). As at least one commenter
noted, this case interprets Illinois state law and, therefore, does
not directly address the issues raised by this rulemaking. However,
the OCC finds the holding and reasoning instructive to its analysis.
\27\ Dean Witter Reynolds Inc. v. Variable Annuity Life Ins.
Co., 373 F.3d 1100, 1110 (10th Cir. 2004) (stating that it was long-
established that ``an assignee stands in the shoes of the
assignor'').
\28\ See Olvera, 413 F.3d at 288-89.
\29\ See id. at 286, 289.
\30\ See 29 Williston on Contracts section 74:10.
---------------------------------------------------------------------------
Several commenters argued that, as common law, valid-when-made and
the assignability of contracts do not provide the OCC with authority
for this regulation. However, the OCC is not citing these tenets as
independent authority for this rulemaking but rather as tenets of
common law that inform its reasonable interpretation of section 85.
Because Congress is presumed to legislate with knowledge of, and
incorporate, common law, it is reasonable to interpret section 85 in
light of these tenets.\31\
---------------------------------------------------------------------------
\31\ Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104,
108 (1991).
---------------------------------------------------------------------------
The OCC's interpretation is also consistent with the purpose of
section 85. This statute facilitates national banks' ability to operate
lending programs on a nationwide basis, a characteristic fundamental to
national banks since their inception.\32\ Recognizing the value of
uniformity in applicable interest law, Congress extended the principles
of section 85 to savings associations, state-chartered insured
depository institutions, and insured credit unions.\33\ Then, in 2010,
while carefully examining the application of state law to national
banks, Congress expressly preserved the authority conferred by section
85, thereby reaffirming its importance.\34\ Reading section 85 as
applying only to loans that a national bank holds to maturity would
undermine this statutory scheme.\35\
---------------------------------------------------------------------------
\32\ See Marquette Nat. Bank of Minneapolis v. First of Omaha
Serv. Corp., 439 U.S. 299, 315-18 (1978) (concluding that Congress
was aware of, and intended to facilitate, interstate lending when it
enacted section 85); Easton v. Iowa, 188 U.S. 220, 229 (1903)
(``[The NBA] has in view the erection of a system extending
throughout the country, and independent, so far as powers conferred
are concerned, of state legislation which, if permitted to be
applicable, might impose limitations and restrictions as various and
as numerous as the states.''); Tiffany v. Nat'l Bank of Mo., 85 U.S.
409, 413 (1873) (``National banks have been National favorites . . .
It could not have been intended, therefore, to expose them to the
hazard of unfriendly legislation by the States . . . .'').
\33\ See 12 U.S.C. 1463(g), 1785, and 1831d.
\34\ 12 U.S.C. 25b(f).
\35\ See Marquette, 439 U.S. at 312 (declining to interpret
section 85 in a manner that would ``throw into confusion the complex
system of modern interstate banking'').
---------------------------------------------------------------------------
The OCC's interpretation also promotes safe and sound operations, a
core component of the OCC's mission as the prudential regulator of
national banks. Even in the mid-nineteenth century, the ability to
transfer loans was recognized as an important tool to manage liquidity
and enhance safety and soundness.\36\ As the Supreme Court stated,
``[banks] must be able to assign or sell [their] notes when necessary
and proper, as, for instance, to procure more specie in an emergency,
or return an
[[Page 33533]]
unusual amount of deposits withdrawn, or pay large debts for a banking-
house.'' \37\ Although the banking system has evolved significantly in
the 150 years since Planters' Bank, national banks of all sizes
continue to routinely rely on loan transfers to access alternative
funding sources, manage concentrations, improve financial performance
ratios, and more efficiently meet customer needs.\38\ While the Madden
decision's effect on a particular national bank necessarily varies
depending on the bank's business model, the resulting legal uncertainty
impairs many national banks' ability to rely on this risk management
tool, which is particularly worrisome in times of economic stress when
funding and liquidity challenges may be acute.\39\ The OCC, therefore,
concludes that its interpretation promotes safety and soundness.
---------------------------------------------------------------------------
\36\ Planters' Bank, 47 U.S. 301.
\37\ Id. at 323.
\38\ Comptroller's Handbook, Safety and Soundness,
``Liquidity,'' at 5, June 2012.
\39\ See Strike v. Trans-W. Disc. Corp., 92 Cal. App. 3d 735,
745 (Cal. Ct. App. 1979) (concluding that the assignee of a bank
note could continue to receive the rate the assigning bank could,
because to conclude otherwise would ``prohibit-make uneconomic-the
assignment or sale by banks of their commercial property to a
secondary market[, which] would be disastrous in terms of bank
operations and not conformable to the public policy exempting banks
in the first instance''); see also LFG Nat'l Capital, LLC v. Gary,
Williams, Finney, Lewis, Watson & Sperando P.L., 874 F. Supp. 2d
108, 125 (N.D.N.Y. 2012) (stating the same).
---------------------------------------------------------------------------
The OCC also received comments arguing that the OCC's rulemaking is
foreclosed by Madden. The OCC disagrees; the Second Circuit made no
finding that section 85's language unambiguously forecloses the OCC's
interpretation, nor did it rely on section 85 in arriving at its
holding.\40\ Therefore, the Madden decision does not limit the OCC's
ability to issue this rulemaking.
---------------------------------------------------------------------------
\40\ See Brand X, 545 U.S. at 982-83 (requiring that ``judicial
precedent hold[ ] that the statute unambiguously forecloses the
agency's interpretation'' (emphasis added)); see also Mhany Mgmt.,
Inc. v. Cty. of Nassau, 819 F.3d 581, 618-19 (2d Cir. 2016)
(applying Brand X to adopt a more recent agency interpretation
rather than two prior Second Circuit interpretations where the court
``did not hold that the statute was unambiguous'').
---------------------------------------------------------------------------
With respect to the comments arguing that neither section 24(Third)
nor section 24(Seventh) provides the OCC with authority to preempt
state usury law, the OCC does not cite these statutes for this purpose.
As this authority section makes clear, these statutes describe the
scope of national bank authorities, highlight the silence in section
85, and inform the OCC's efforts to resolve this silence.\41\
---------------------------------------------------------------------------
\41\ See King v. Burwell, 135 S. Ct. 2480, 2489 (2015) (``[W]hen
deciding whether the language is plain, we must read the words `in
their context and with a view to their place in the overall
statutory scheme.' '' (quoting FDA v. Brown & Williamson Tobacco
Corp., 529 U.S. 120, 133 (2000)).
---------------------------------------------------------------------------
Although the foregoing discussion specifically addresses national
banks, it applies equally to savings associations. In 12 U.S.C.
1463(g), Congress provided savings associations with authority similar
to section 85 to charge interest as permitted by the laws of the state
in which the savings association is located. Congress modeled section
1463(g) on section 85 to place savings associations on equal footing
with their national bank competitors, and thus, these provisions are
interpreted in pari materia.\42\ Therefore, the OCC concludes that
section 1463(g) should be interpreted coextensively with section 85 in
this regard, which will help ensure that savings associations and
national banks have equal authority to transfer their loans without
affecting the permissibility of the interest term.
---------------------------------------------------------------------------
\42\ See Gavey Props./762 v. First Fin. Sav. & Loan Ass'n, 845
F.2d 519, 521 (5th Cir. 1988) (``Given the similarity of language,
the conclusion is virtually compelled that Congress sought to
provide federally insured credit institutions with the same `most-
favored lender' status enjoyed by national banks.''); 61 FR 50951,
50968 (Sept. 30, 1996) (``OTS and its predecessor, the FHLBB, have
long looked to the OCC regulation and other precedent interpreting
the national bank most favored lender provision for guidance in
interpreting [12 U.S.C. 1463(g)] and OTS's implementing
regulation.''); OTS letter from Harris Weinstein, December 24, 1992,
1992 WL 12005275.
---------------------------------------------------------------------------
Based on the foregoing, the OCC concludes that, as a matter of
Federal law, banks may transfer their loans without impacting the
permissibility or enforceability of the interest term.
12 U.S.C. 25b
Several commenters argued that the OCC's rule is subject to the
substantive and procedural requirements set forth in section 25b and
that the OCC has not complied with these requirements. The OCC
disagrees and continues to conclude that the requirements of section
25b are inapplicable to this rulemaking.
Section 25b applies when the Comptroller determines, on a case-by-
case basis, that a state consumer financial law is preempted pursuant
to the standard for conflict preemption established by the Supreme
Court in Barnett Bank of Marion County, N. A. v. Nelson, Florida
Insurance Commissioner,\43\ i.e., when the Comptroller makes a
``preemption determination.'' \44\ Interpretations about the
substantive scope of section 85 are not preemption determinations. For
example, the two most recent substantive Supreme Court opinions on
section 85 primarily analyze what the statute authorizes as a matter of
Federal law, rather than focus on preemption.\45\ In fact, the Court
specifically recognized this difference in Smiley, noting that ``the
question of the substantive (as opposed to pre-emptive) meaning of a
statute'' is distinct from ``the question of whether a statute is pre-
emptive.'' \46\ This rulemaking addresses the former question, i.e.,
the meaning of section 85. The proposal simply articulated the OCC's
view about the substantive scope of authority granted to banks. The
final rule adopts the same approach and thus is not a preemption
determination under section 25b.\47\
---------------------------------------------------------------------------
\43\ 517 U.S. 25 (1996).
\44\ See 12 U.S.C. 25b(b)(1)(B).
\45\ See Smiley, 517 U.S. 735; Marquette, 439 U.S. 299.
\46\ Smiley, 517 U.S. at 744 (emphasis in original).
\47\ For these same reasons, the OCC is not persuaded by
commenters who argued that sections 25b(b)(2), (e), and (h)(2)
preclude the agency from issuing this rule.
---------------------------------------------------------------------------
The OCC also concludes that this rulemaking is outside the scope of
section 25b because of section 25b(f), which provides that ``[n]o
provision of title 62 of the Revised Statutes shall be construed as
altering or otherwise affecting the authority conferred by section
85.'' Section 25b is in title 62 of the Revised Statutes, and
therefore, its requirements also do not alter or affect the authority
conferred under section 85, including as interpreted in this
rulemaking.\48\ For these reasons, the OCC disagrees with the
commenters who argued that section 25b(f) does not exempt rules
interpreting section 85.\49\
---------------------------------------------------------------------------
\48\ Section 25b(f) also supports the OCC conclusion that
sections 25b(b)(2), (e), and (h)(2) do not preclude the agency from
issuing this rule.
\49\ This conclusion is supported by consideration of the
parallel authority conferred under 12 U.S.C. 1831d, which is
construed in pari materia with section 85. See, e.g., Greenwood Tr.
Co. v. Massachusetts, 971 F.2d 818, 827 (1st Cir. 1992); FDIC
General Counsel's Opinion No. 11, Interest Charges by Interstate
State Banks, 63 FR 27282 (May 18, 1998). Congress did not subject
Federal Deposit Insurance Corporation (FDIC) interpretations of
section 1831d to section 25b or equivalent requirements. Given that
sections 1831d and 85 are construed in pari materia, it would be
incongruous to conclude that an OCC rule interpreting section 85
would be subject to the requirements of section 25b while a
substantively identical FDIC rule issued pursuant to parallel
statutory authority would not. The same argument can be made
regarding section 1463(g).
---------------------------------------------------------------------------
The OCC thus concludes that this rulemaking is not subject to the
requirements of section 25b.\50\ Because the OCC concludes that these
requirements are inapplicable, the OCC declines to address comments
regarding how to comply with these requirements.
---------------------------------------------------------------------------
\50\ Some commenters also argued that section 25b applies to
this rulemaking because the OCC cited sections 24(Third) and
24(Seventh) in its proposal. As explained above, the OCC does not
cite these statutes as direct authority for this rule or for their
preemptive effect.
---------------------------------------------------------------------------
[[Page 33534]]
Administrative Procedure Act
Several commenters argued that the OCC's actions violate the APA.
First, commenters argued that the OCC is acting ``in excess of
statutory jurisdiction, authority, or limitations,'' \51\ because it
lacks authority to issue the rule. As described in detail above, the
OCC disagrees and concludes that it has the authority to issue this
rule under sections 85 and 1463(g).
---------------------------------------------------------------------------
\51\ 5 U.S.C. 706(2)(C).
---------------------------------------------------------------------------
Second, several commenters argued that the OCC is acting ``without
observance of procedure required by law''\52\ in violation of the APA
because it did not comply with the procedural requirements in section
25b. As explained above, the OCC concludes that these provisions do not
apply.
---------------------------------------------------------------------------
\52\ Id. at 706(2)(D).
---------------------------------------------------------------------------
Finally, commenters argued that the OCC's proposal is arbitrary and
capricious, including because it did not provide evidence of the
problem it seeks to remedy. The OCC disagrees. The APA's arbitrary and
capricious standard requires an agency to make rational and informed
decisions based on the information before it.\53\ The primary problem
the OCC seeks to address is the legal uncertainty resulting from the
Madden decision, and the OCC has observed considerable evidence of this
uncertainty.\54\ The OCC understands that its rule may not resolve all
legal uncertainty for every loan transfer, as at least one opposing
commenter noted. However, resolving every potential uncertainty is not
a prerequisite for the OCC to take this narrowly tailored action to
address a discrete source of uncertainty.\55\
---------------------------------------------------------------------------
\53\ Ass'n of Private Colls. & Univs. v. Duncan, 870 F. Supp. 2d
133, 154 (D.D.C. 2012); see Motor Vehicle Mfrs. Ass'n of U.S., Inc.
v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 52 (1983) (``The
agency must explain the evidence which is available, and must offer
a `rational connection between the facts found and the choice
made.''' (quoting Burlington Truck Lines, Inc. v. United States, 371
U.S. 156, 168 (1962))).
\54\ For example, there are ongoing cases challenging the
interest charged on securitized credit card receivables, with
competing arguments regarding whether Madden applies in that
circumstance. Similarly, the application of Madden to inter-bank
loan transfers remains unresolved. Comments on the NPR from industry
representatives also evidence the existence of legal uncertainty
post-Madden.
\55\ See Taylor v. Fed. Aviation Admin., 895 F.3d 56, 68 (2018);
cf. Smiley, 517 U.S. at 743 (stating ``that there was good reason
for the Comptroller to promulgate the new regulation, in order to
eliminate uncertainty and confusion'').
---------------------------------------------------------------------------
Relying on this clear evidence of current legal uncertainty, the
OCC has made a rational and informed decision to issue this rule.
Furthermore, the OCC is not required to develop or adduce empirical
or other data to support its conclusions about the importance of
issuing this rule, nor must the OCC wait for the additional problems to
materialize before taking action.\56\ Instead, the OCC may rely on its
supervisory expertise to anticipate and address the problems that may
arise from Madden and the legal uncertainty it has created.\57\ As
described above, the OCC believes that its interpretation promotes
safety and soundness and may facilitate responsible lending and
efficient and effective bank operations.
---------------------------------------------------------------------------
\56\ Stilwell v. Office of Thrift Supervision, 569 F.3d 514, 519
(D.C. Cir. 2009) (``The APA imposes no general obligation on
agencies to produce empirical evidence. . . . Moreover, agencies
can, of course, adopt prophylactic rules to prevent potential
problems before they arise. . . . OTS based its proposed rule on its
long experience of supervising mutual savings associations; its view
found support in various comments submitted in response to the
proposed rule.''); Chamber of Commerce of U.S. v. SEC, 412 F.3d 133,
142 (D.C. Cir. 2005) (holding that the SEC did not have to conduct
an empirical study in support of its rulemaking where it based its
decision on ``its own and its staff's experience, the many comments
received, and other evidence, in addition to the limited and
conflicting empirical evidence'').
\57\ FCC v. WNCN Listeners Guild, 450 U.S. 582, 595-96 (1981)
(granting deference to the agency's ``forecast of the direction in
which future public interest lies''); U.S. Telecom Ass'n v. FCC, 825
F.3d 674, 732 (D.C. Cir. 2016) (``[A]n agency's predictive judgments
about areas that are within the agency's field of discretion and
expertise are entitled to particularly deferential review, as long
as they are reasonable.'' (emphasis in original) (quoting EarthLink,
Inc. v. FCC, 462 F.3d 1, 12 (D.C. Cir. 2006)).
---------------------------------------------------------------------------
Commenters also argued that the rule is arbitrary and capricious
because it failed to consider the potential negative consequences that
would, they argued, result from the rule, including the facilitation of
predatory lending through ``rent-a-charter relationships.'' The OCC
disagrees. The agency takes the risks created by predatory lending,
including through third-party relationships, very seriously but, for
the reasons discussed below, does not believe that that this rule will
facilitate predatory lending through these relationships.
Predatory Lending
Some commenters argued that the proposal would facilitate predatory
lending by promoting rent-a-charter relationships that allow nonbanks
to evade state law and that it would reverse the OCC's historical
opposition to these relationships. These commenters asserted that the
proposal would undermine or eliminate state interest caps, a vital tool
that states use to protect residents against predatory lending.
The OCC disagrees with these commenters' criticisms of this
rulemaking. As made clear above, the OCC is issuing the rule to clarify
its position with regard to the proper interpretation of sections 85
and 1463(g)(1), which relates to a core element of banks' ability to
engage in safe and sound banking: The ability to transfer loans.
However, the OCC also notes, as many commenters did, that the agency
has consistently opposed predatory lending, including through
relationships between banks and third parties. Nothing in this
rulemaking in any way alters the OCC's strong position on this issue,
nor does it rescind or amend any related OCC issuances.
The OCC also understands that appropriate third-party relationships
play an important role in banks' operations and the economy, and the
OCC has issued guidance on how banks can appropriately manage the risks
associated with these relationships.\58\
---------------------------------------------------------------------------
\58\ See OCC Bulletin 2014-37, Consumer Debt Sales: Risk
Management Guidance (Aug. 4, 2014); OCC Bulletin 2013-29, Third-
Party Relationships: Risk Management Guidance (Oct. 30, 2013); OCC
Bulletin 2020-10, Third-Party Relationships: Frequently Asked
Questions to Supplement OCC Bulletin 2013-29 (Mar. 5, 2020).
---------------------------------------------------------------------------
Because commenters are concerned that the rule would undermine
state interest caps, it is also important to emphasize that sections 85
and 1463(g) incorporate, rather than eliminate, these state caps. As
noted above, these statutes require that a bank refer to, and comply
with, the interest cap established by the laws of the state where the
bank is located. Thus, disparities between the interest caps applicable
to particular bank loans result primarily from differences in the state
laws that impose these caps. This rule does not change that.
IV. Regulatory Text
The OCC proposed to amend 12 CFR 7.4001 and 12 CFR 160.110 by
adding a new paragraph, which would provide that interest on a loan
that is permissible under sections 85 and 1463(g)(1), respectively,
shall not be affected by the sale, assignment, or other transfer of the
loan. As the proposal explained, this rule would expressly codify what
the OCC and the banking industry have always believed and address the
legal confusion about the impact of a transfer on the permissible
interest. The proposal also noted that this rule would not address
which entity is the true lender when a bank transfers a loan to a third
party.
The OCC received several comments on its proposed regulatory text.
Commenters requested several clarifying changes, including
recommendations to (1) specifically reference non-bank third
[[Page 33535]]
parties in the regulatory text; (2) ensure that the rule applies to
transfers of partial interests in loans; and (3) clarify that the rule
does not affect the applicability of other state law requirements,
including licensing requirements. The OCC does not believe any changes
to the regulatory text are necessary to address these recommendations
because the OCC reads the regulatory text to be consistent with these
recommendations.
In addition, a commenter requested that the OCC clarify that the
rule applies to all price terms of a loan. The OCC's rule applies to
``interest,'' as that term is defined in 12 CFR 7.4001(a) and 12 CFR
160.110(a).
Several commenters also requested that the OCC address who is the
true lender in its regulatory text. One commenter requested that the
OCC specifically include regulatory text providing that the rule does
not affect the determination of which entity is the true lender. The
OCC reiterates that this rule does not address which entity is the true
lender but does not believe it is necessary to specifically include a
statement to this effect in the regulatory text. Another commenter
requested that the OCC include a proviso providing that the rule only
applies when the bank is the true lender, as determined by the law of
the state where the borrower resides. Because the rule only applies to
bank loans that are permissible under section 85 or 1463(g), the OCC
does not believe that adding this proviso is necessary. Other
commenters requested that the OCC establish a test for determining when
the bank is the true lender. This would raise issues distinct from, and
outside the scope of, this narrowly tailored rulemaking.
Finally, several commenters argued that the OCC and the FDIC should
coordinate and harmonize their respective regulatory texts, which will
help minimize any differences in court decisions.\59\ The OCC's
proposed regulatory text was narrowly tailored to address the specific
legal uncertainty created by Madden, and the OCC believes this
regulatory text best implements its interpretation of the statutory
language in sections 85 and 1463(g)(1). Accordingly, the OCC adopts the
rule as proposed. However, the OCC notes that it intends that its rule
will function in the same way as the FDIC's proposed regulatory text
would, which is consistent with interpreting sections 85 and 1831d in
pari materia.\60\
---------------------------------------------------------------------------
\59\ On December 6, 2019, the FDIC proposed a similar rule based
on section 1831d. Federal Interest Rate Authority, 84 FR 66845.
\60\ This discussion refers specifically to 12 CFR 331.4(e) of
the FDIC's proposed rule, which would address the impact a loan
transfer has on permissible interest. The FDIC's proposed regulatory
text also would address additional subsequent events, including
changes in state law and changes in the relevant commercial paper
rate. Although the OCC's rule does not address these circumstances,
the OCC believes that the result would generally be the same for
loans made by OCC-regulated banks.
---------------------------------------------------------------------------
V. Regulatory Analyses
Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (PRA), 44 U.S.C. 3501 et seq., the OCC may not conduct or
sponsor, and respondents are not required to respond to, an information
collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. The OCC has reviewed the final rule
and determined that it would not introduce any new or revise any
existing collection of information pursuant to the PRA. Therefore, no
PRA submission will be made to OMB.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires an agency, in connection with a final rule, to prepare a Final
Regulatory Flexibility Analysis describing the impact of the rule on
small entities (defined by the Small Business Administration (SBA) for
purposes of the RFA to include commercial banks and savings
institutions with total assets of $600 million or less and trust
companies with total assets of $41.5 million or less) or to certify
that the final rule would not have a significant economic impact on a
substantial number of small entities. The OCC currently supervises
approximately 745 small entities.\61\ The ability to transfer a loan is
important to all banks, so the OCC expects that all of these small
entities would be impacted by this rule. However, the rule does not
contain any new recordkeeping, reporting, or significant compliance
requirements. Therefore, the OCC anticipates that costs, if any, will
be de minimis and certifies that this rule will not have a significant
economic impact on a substantial number of small entities. Accordingly,
a Final Regulatory Flexibility Analysis is not required.
---------------------------------------------------------------------------
\61\ The OCC bases its estimate of the number of small entities
on the SBA's size thresholds for commercial banks and savings
institutions, and trust companies, which are $600 million and $41.5
million, respectively. Consistent with the General Principles of
Affiliation, 13 CFR 121.103(a), the OCC counts the assets of
affiliated financial institutions when determining if the OCC should
classify an OCC-supervised institution as a small entity. The OCC
uses December 31, 2019, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
See footnote 8 of the SBA's Table of Size Standards.
---------------------------------------------------------------------------
Unfunded Mandates Reform Act
Pursuant to the Unfunded Mandates Reform Act of 1995, 2 U.S.C.
1532, the OCC considers whether a final rule includes a Federal mandate
that may result in the expenditure by State, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year (adjusted for inflation). The final
rule does not impose new mandates. Therefore, the OCC concludes that
implementation of the final rule would not result in an expenditure of
$100 million (adjusted for inflation) or more annually by State, local,
and tribal governments, or by the private sector.
Riegle Community Development and Regulatory Improvement Act
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act of 1994 (RCDRIA), 12 U.S.C. 4802(a), in
determining the effective date and administrative compliance
requirements for new regulations that impose additional reporting,
disclosure, or other requirements on insured depository institutions,
the OCC must consider, consistent with principles of safety and
soundness and the public interest, any administrative burdens that such
regulations would place on depository institutions, including small
depository institutions, and customers of depository institutions, as
well as the benefits of such regulations. In addition, section 302(b)
of RCDRIA, 12 U.S.C. 4802(b), requires new regulations and amendments
to regulations that impose additional reporting, disclosures, or other
new requirements on insured depository institutions generally to take
effect on the first day of a calendar quarter that begins on or after
the date on which the regulations are published in final form. This
rule imposes no additional reporting, disclosure, or other requirements
on insured depository institutions, and therefore, neither section
302(a) or 302(b) is applicable to this rule.
Congressional Review Act
For purposes of Congressional Review Act (CRA), 5 U.S.C. 801 et
seq., the Office of Information and Regulatory Affairs (OIRA) of the
OMB determines whether a final rule is a ``major rule,'' as that term
is defined at 5 U.S.C. 804(2). OIRA has determined that this rule is
not a ``major rule.''
[[Page 33536]]
As required by the CRA, the OCC will submit the final rule and
other appropriate reports to Congress and the Government Accountability
Office for review.
Administrative Procedure Act
The APA, 5 U.S.C. 551 et seq., generally requires that a final rule
be published in the Federal Register not less than 30 days before its
effective date. This final rule will be effective 60 days after
publication in the Federal Register, which meets the APA's effective
date requirement.
List of Subjects
12 CFR Part 7
National banks, Interest, Usury.
12 CFR Part 160
Savings associations, Interest, Usury.
Office of the Comptroller of the Currency
For the reasons set out in the preamble, the OCC amends 12 CFR
parts 7 and 160 as follows.
PART 7--ACTIVITIES AND OPERATIONS
0
1. The authority citation for part 7 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 25b, 29, 71, 71a, 92, 92a, 93,
93a, 95(b)(1), 371, 371d, 481, 484, 1463, 1464, 1465, 1818, 1828(m)
and 5412(b)(2)(B).
Subpart D--Preemption
0
2. Section 7.4001 is amended by adding paragraph (e) to read as
follows:
Sec. 7.4001 Charging interest by national banks at rates permitted
competing institutions; charging interest to corporate borrowers.
* * * * *
(e) Transferred loans. Interest on a loan that is permissible under
12 U.S.C. 85 shall not be affected by the sale, assignment, or other
transfer of the loan.
PART 160--LENDING AND INVESTMENT
0
3. The authority citation for part 160 continues to read as follows:
Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1701j-3, 1828,
3803, 3806, 5412(b)(2)(B); 42 U.S.C. 4106.
0
4. Section 160.110 is amended by adding paragraph (d) to read as
follows:
Sec. 160.110 Most favored lender usury preemption for all savings
associations.
* * * * *
(d) Transferred loans. Interest on a loan that is permissible under
12 U.S.C. 1463(g)(1) shall not be affected by the sale, assignment, or
other transfer of the loan.
Brian P. Brooks,
Acting Comptroller of the Currency.
[FR Doc. 2020-11963 Filed 6-1-20; 8:45 am]
BILLING CODE 4810-33-P