National Banks and Federal Savings Associations as Lenders, 44223-44228 [2020-15997]
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44223
Proposed Rules
Federal Register
Vol. 85, No. 141
Wednesday, July 22, 2020
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 7
[Docket ID OCC–2020–0026]
RIN 1557–AE97
National Banks and Federal Savings
Associations as Lenders
Office of the Comptroller of the
Currency, Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
The Office of the Comptroller
of the Currency (OCC) is proposing a
regulation to determine when a national
bank or Federal savings association
(bank) makes a loan and is the ‘‘true
lender’’ in the context of a partnership
between a bank and a third party, such
as a marketplace lender. Under this
proposal, a bank makes a loan if, as of
the date of origination, it is named as
the lender in the loan agreement or
funds the loan.
DATES: Comments must be received on
or before September 3, 2020.
ADDRESSES: Commenters are encouraged
to submit comments through the Federal
eRulemaking Portal or email, if possible.
Please use the title ‘‘National Banks and
Federal Savings Associations as
Lenders’’ to facilitate the organization
and distribution of the comments. You
may submit comments by any of the
following methods:
• Federal eRulemaking Portal—
Regulations.gov Classic or
Regulations.gov Beta.
Regulations.gov Classic: Go to https://
www.regulations.gov/. Enter ‘‘Docket ID
OCC–2020–0026’’ in the Search Box and
click ‘‘Search.’’ Click on ‘‘Comment
Now’’ to submit public comments. For
help with submitting effective
comments, please click on ‘‘View
Commenter’s Checklist.’’ Click on the
‘‘Help’’ tab on the Regulations.gov home
page to get information on using
Regulations.gov, including instructions
for submitting public comments.
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SUMMARY:
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Regulations.gov Beta: Go to https://
beta.regulations.gov/ or click ‘‘Visit
New Regulations.gov Site’’ from the
Regulations.gov classic homepage. Enter
‘‘Docket ID OCC–2020–0026’’ in the
Search Box and click ‘‘Search.’’ Public
comments can be submitted via the
‘‘Comment’’ box below the displayed
document information or click on the
document title and click the
‘‘Comment’’ box on the top-left side of
the screen. For help with submitting
effective comments, please click on
‘‘Commenter’s Checklist.’’ For
assistance with the Regulations.gov Beta
site, please call (877)-378–5457 (toll
free) or (703) 454–9859 Monday–Friday,
9 a.m.–5 p.m. ET or email to
regulations@erulemakinghelpdesk.com.
• Email: regs.comments@
occ.treas.gov.
• Mail: Chief Counsel’s Office,
Attention: Comment Processing, Office
of the Comptroller of the Currency, 400
7th Street SW, Suite 3E–218,
Washington, DC 20219.
• Hand Delivery/Courier: 400 7th
Street SW, Suite 3E–218, Washington,
DC 20219.
• Fax: (571) 465–4326.
Instructions: You must include
‘‘OCC’’ as the agency name and ‘‘Docket
ID OCC–2020–0026’’ in your comment.
In general, the OCC will enter all
comments received into the docket and
publish the comments on the
Regulations.gov website without
change, including any business or
personal information provided such as
name and address information, email
addresses, or phone numbers.
Comments, including attachments and
other supporting materials, are part of
the public record and subject to public
disclosure. Do not include any
information in your comment or
supporting materials that you consider
confidential or inappropriate for public
disclosure.
You may review comments and other
related materials that pertain to this
rulemaking action by any of the
following methods:
• Viewing Comments Electronically—
Regulations.gov Classic or
Regulations.gov Beta: Regulations.gov
Classic: Go to https://
www.regulations.gov/. Enter ‘‘Docket ID
OCC–2020–0026’’ in the Search box and
click ‘‘Search.’’ Click on ‘‘Open Docket
Folder’’ on the right side of the screen.
Comments and supporting materials can
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be viewed and filtered by clicking on
‘‘View all documents and comments in
this docket’’ and then using the filtering
tools on the left side of the screen. Click
on the ‘‘Help’’ tab on the
Regulations.gov home page to get
information on using Regulations.gov.
The docket may be viewed after the
close of the comment period in the same
manner as during the comment period.
Regulations.gov Beta: Go to https://
beta.regulations.gov/ or click ‘‘Visit
New Regulations.gov Site’’ from the
Regulations.gov classic homepage. Enter
‘‘Docket ID OCC 2020–0026’’ in the
Search Box and click ‘‘Search.’’ Click on
the ‘‘Comments’’ tab. Comments can be
viewed and filtered by clicking on the
‘‘Sort By’’ drop-down on the right side
of the screen or the ‘‘Refine Results’’
options on the left side of the screen.
Supporting Materials can be viewed by
clicking on the ‘‘Documents’’ tab and
filtered by clicking on the ‘‘Sort By’’
drop-down on the right side of the
screen or the ‘‘Refine Results’’ options
on the left side of the screen.’’ For
assistance with the Regulations.gov Beta
site please call (877) 378–5457 (toll free)
or (703) 454–9859 Monday-Friday,
9a.m.–5p.m. ET or email to regulations@
erulemakinghelpdesk.com. The docket
may be viewed after the close of the
comment period in the same manner as
during the comment period.
FOR FURTHER INFORMATION CONTACT:
Andra Shuster, Senior Counsel, Karen
McSweeney, Special Counsel, Alison
MacDonald, Special Counsel, or
Priscilla Benner, Senior Attorney, Chief
Counsel’s Office, (202) 649–5490, Office
of the Comptroller of the Currency, 400
7th Street SW, Washington, DC 20219.
For persons who are deaf or hearing
impaired, TTY users may contact (202)
649–5597.
SUPPLEMENTARY INFORMATION:
I. Introduction
The U.S. economy relies on access to
affordable credit to fuel economic
growth and job creation. Americans rely
on affordable credit to reach goals large
and small, ranging from purchasing
consumer goods, cars, and homes to
starting or growing small businesses.
While national banks and Federal
savings associations (banks) play a
critical role in supplying this credit, the
financial system is most efficient when
banks work effectively with other
market participants to meet customers’
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credit needs. These relationships allow
banks to manage their risks and leverage
their balance sheets to increase the
supply of available credit in ways they
would not be able to if they were acting
alone.
One way that banks achieve this
efficiency is by selling loans to third
parties and using the proceeds from
these sales to make additional loans.1
For example, credit card securitization
allows a bank to originate very large
loan pools for a diverse customer base
at lower rates than if the bank had to
fund the loans on its balance sheet.2 By
removing the assets and supporting debt
from its balance sheet, the bank is able
to save some of the costs of on-balancesheet financing and manage potential
asset-liability mismatches and credit
concentrations.3 Bank customers benefit
from the increased availability of credit
these securitization relationships
provide.4
Lending relationships with third
parties can also help banks meet
customers’ need for affordable credit,
including the needs of unbanked or
underbanked individuals.5 For example,
these relationships can enable banks to
market affordable loan products to a
wider range of potential customers or to
develop or acquire innovative credit
underwriting models that facilitate
expanded access to credit. Banks can
also work with third parties to develop
responsible lending programs to help
customers meet credit needs, including
small-dollar lending programs designed
to assist with cash-flow imbalances,
unexpected expenses, or income
shortfalls.6
While these lending relationships can
be effective tools to facilitate affordable
access to credit, there has been
increasing uncertainty about the legal
framework that applies to the loans
made as part of these relationships. This
1 Conversely, banks may invest in loans made by
third parties, which provides the third parties with
additional capital to make new loans.
2 Office of the Comptroller of the Currency,
Comptroller’s Handbook, ‘‘Asset Securitization’’ at
5 (Nov. 1997).
3 Id. at 2.
4 Id. at 4–5.
5 Many relationships between banks and third
parties address core banking functions other than
lending (i.e., making payments and taking deposits).
See, e.g., 12 CFR 5.20(e). However, relationships
that do not involve making loans are beyond the
scope of this rulemaking. In addition, for purposes
of this rulemaking, references to partnerships are
not limited to legal partnerships and include a
variety of other arrangements through which banks
can work with third parties. This rulemaking uses
the terms partnership and relationship
interchangeably.
6 See Interagency Lending Principles for Offering
Responsible Small-Dollar Loans (May 2020); Joint
Statement Encouraging Responsible Small-Dollar
Lending in Response to COVID–19 (Mar. 2020).
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uncertainty may discourage banks and
third parties from entering into
relationships, limit competition, and
chill the innovation that results from
these partnerships—all of which may
restrict access to affordable credit.
Federal law authorizes banks to enter
into contracts, to make loans, and to
subsequently transfer these loans and
assign loan contracts.7 These statutes,
however, do not specifically address
which entity makes a loan (or, in the
vernacular commonly used in case law,
which entity is the ‘‘true lender’’) and,
therefore, what legal framework applies,
when the loan is originated as part of a
lending relationship between a bank
and a third party. Furthermore, the OCC
has not previously taken regulatory
action to resolve this ambiguity. In the
absence of regulatory action, courts are
left to determine when, in a lending
partnership, a bank is making the loan
and when its partner makes the loan.
A growing body of case law has
introduced divergent standards for
resolving this issue. In some cases, the
court has concluded that the form of the
transaction alone resolves this issue.8
Under this analysis, the lender is the
entity named in the loan agreement.
In other cases, the courts have applied
fact-intensive balancing tests,9 in which
they have considered a multitude of
factors, including: (1) How long the
entity named as the lender holds the
loan before selling it to the third
party; 10 (2) whether the third party
advances money that the named lender
draws on to make loans; 11 (3) whether
7 See 12 U.S.C. 24(Third), 24(Seventh), 371, 1464;
see also 12 CFR 7.4008, 34.3, 160.30.
8 See, e.g., Beechum v. Navient Solutions, Inc.,
No. EDCV 15–8239–JGB–KKx, 2016 WL 5340454, at
*8 (C.D. Cal. Sept. 20, 2016) (holding that the court
will look ‘‘only to the face of the transactions at
issue’’).
9 See, e.g., CFPB v. CashCall, Inc., No. CV 15–
7522–JFW, 2016 WL 4820635, at *5–*6 (C.D. Cal.
Aug. 31, 2016) (examining ‘‘which party or entity
has the predominant economic interest in the
transaction,’’ including by evaluating which party
placed its money at risk).
10 Id. at *6 (concluding that the third party was
the true lender, including because ‘‘[a]lthough [the
third party] waited a minimum of three days after
the funding of each loan before purchasing it, it is
undisputed that [the third party] purchased each
and every loan before any payments on the loan had
been made.’’); CashCall, Inc. v. Morrisey, No. 12–
1274, 2014 WL 2404300, at *1, *7 (W.Va. May 30,
2014) (noting that the third party purchased loans
within three days of origination but not clearly
indicating whether this fact was considered as part
of the predominant economic interest analysis);
Sawyer v. Bill Me Later, Inc., 23 F. Supp. 3d 1359,
1369 (D. Utah 2014) (noting that the named lender
was the real party in interest, including because it
‘‘holds the credit receivables for two days’’).
11 See, e.g., CFPB v. CashCall, 2016 WL 4820635,
at *6 (‘‘It is undisputed that [the third party]
deposited enough money into a reserve account to
fund two days of loans, calculated on the previous
month’s daily average and that [the named lender]
used this money to fund consumer loans.’’).
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the third party guarantees minimum
payments or fees to the named lender; 12
(4) whether the third party agrees to
indemnify the named lender; 13 and (5)
how loans are treated for financial
reporting purposes.14 However, no
factor is dispositive, nor are the factors
assessed based on any predictable,
bright-line standard. Even when
nominally engaged in the same
analysis—determining which entity has
the ‘‘predominant economic interest’’ in
the transaction—courts do not
necessarily consider all of the same
factors or give each factor the same
weight.15 These fact-intensive inquiries,
coupled with the lack of a uniform and
predictable standard, increase the
subjectivity in determining who is the
true lender and undermine banks’
ability to partner with third parties to
lend across jurisdictions on a
nationwide basis.
As a result of this legal uncertainty,
stakeholders cannot reliably determine
which entity makes a loan, and
therefore, the applicability of key
aspects of the legal framework as of the
date of origination is unclear. For
example, Federal law establishes the
interest a bank may charge on any loan
it makes and authorizes the bank to
export that rate from the state in which
it is located to borrowers in other
states.16 While the OCC recently
clarified that interest permissible on a
loan made by a bank is not affected by
the subsequent sale, assignment, or
other transfer of the loan,17 uncertainty
remains regarding how to determine if
a loan is, in fact, made by a bank as
opposed to by its relationship partner.
To address this uncertainty, the OCC
is proposing a clear test to determine
when a bank makes a loan. In doing so,
the OCC is fulfilling its responsibility to
resolve ambiguities in the Federal
banking laws it is charged with
administering and ensuring clarity and
12 See, e.g., id. at *2 (‘‘[The third party]
guaranteed [the named lender] a minimum payment
of $100,000 per month, as well as a $10,000
monthly administrative fee.’’).
13 See, e.g., id. at *3 (‘‘[The third party] agreed to
‘fully indemnify [the named lender] for all costs
arising or resulting from any and all civil, criminal
or administrative claims or actions . . . .’ ’’);
CashCall v. Morrisey, 2014 WL 2404300, at *7
(noting that the Circuit Court found that the third
party agreed to indemnify the named lender).
14 CashCall v. Morrisey, 2014 WL 2404300, at *7
(noting that loans were treated as if they were
funded by the third party for financial reporting
purposes).
15 Compare CFPB v. CashCall, 2016 WL 4820635,
with CashCall v. Morrisey, 2014 WL 2404300.
16 See 12 U.S.C. 85, 1463(g); 12 CFR 7.4001,
160.110.
17 12 CFR 7.4001(e), 160.110(d) (effective Aug. 3,
2020); Permissible Interest on Loans That Are Sold,
Assigned, or Otherwise Transferred, 85 FR 33,530
(June 2, 2020) (Madden-fix rule).
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uniformity for the banks it supervises.18
The OCC’s proposed rule would enable
banks to fully exercise the lending
authority granted to them under Federal
law and allow stakeholders to reliably
and consistently identify key aspects of
the legal framework applicable to a loan.
When a bank makes a loan, a robust
Federal framework applies to ensure
that banks are lending in a safe and
sound manner and in compliance with
applicable laws and regulations, and the
OCC is the prudential regulator of the
bank’s lending activities. Additionally,
if the bank makes the loan in the context
of a relationship with a third party, the
OCC ensures that the bank has
instituted appropriate safeguards to
manage the associated risks.19 In
contrast, if a third party makes a loan as
part of a relationship with a bank, the
OCC is not the prudential regulator of
the lending activity, though it still
assesses the bank’s third-party risk
management in connection with the
relationship itself.20
II. Description of the Proposal
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Several provisions of Federal banking
law grant banks the authority to make
loans. Specifically, section 5136 of the
Revised Statutes (12 U.S.C. 24) provides
that a national bank may engage in the
business of banking, including by
‘‘loaning money.’’ Section 24 of the
Federal Reserve Act (12 U.S.C. 371)
states that a national bank may ‘‘make
. . . loans,’’ and section 5(c) (12 U.S.C.
1464(c)) of the Home Owners’ Loan Act
states that a Federal savings association
may ‘‘invest in, sell, or otherwise deal
in . . . loans.’’ Although each statute
uses slightly different language to
authorize banks to extend credit, none
describes how to determine when a
bank has, in fact, exercised this
authority, and when, by contrast, the
bank’s relationship partner has made
the loan. In light of this statutory
ambiguity, the OCC has concluded, for
the reasons set forth below, that it is
reasonable to interpret these statutes to
provide that a bank makes a loan
whenever it, as of the date of
origination, (1) is named as the lender
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 12 U.S.C. 93a
(OCC authority to prescribe rules and regulations).
19 See, e.g., 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).
20 See supra note 19.
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in the loan agreement or (2) funds the
loan.21
If a bank is named in the loan
agreement as the lender as of the date
of origination, the OCC views this
imprimatur as conclusive evidence that
the bank is exercising its authority to
make loans pursuant to the statutes
cited above and has elected to subject
itself to the panoply of applicable
Federal laws and regulations (including
but not limited to consumer protection
laws) governing lending by banks.22
There are also circumstances in which
a bank is not named as the lender in the
loan agreement but is still, in the OCC’s
view, making the loan.23 To ensure that
the OCC’s rule would capture these
circumstances, the agency is proposing
a second standard based on which party
funded the loan. Under this standard, if
a bank funds a loan as of the date of
origination, the OCC concludes that it
has a predominant economic interest in
the loan and, therefore, has made the
loan—regardless of whether it is the
named lender in the loan agreement as
of the date of origination.24 Under the
OCC’s proposal, the determination of
which entity made the loan under the
above standards would be complete as
of the date the loan is originated and
would not change, even if the bank were
to subsequently transfer the loan.25
Therefore, the OCC proposes that, for
purposes of sections 5136 and 5197 of
the Revised Statutes (12 U.S.C. 24 and
12 U.S.C. 85), section 24 of the Federal
Reserve Act (12 U.S.C. 371), and
sections 4(g) and 5(c) the Home Owners’
Loan Act (12 U.S.C. 1463(g) and 12
U.S.C. 1464(c)), a bank makes a loan
when, as of the date of origination, it (1)
is named as lender in the loan
agreement or (2) funds the loan.
The OCC invites comments on all
aspects of this proposal, including
whether there are additional lending
arrangements that should be captured
by the OCC’s standards for determining
when a bank makes a loan and whether
the proposed standards would capture
lending arrangements that should be
excluded.26
21 This proposal also interprets 12 U.S.C. 85 and
1463(g), which govern the interest permitted on
bank loans. This proposal would not, however,
affect the application of Federal consumer financial
laws. For example, this proposal would not affect
the meaning of the term ‘‘creditor’’ as used in the
Truth in Lending Act, 15 U.S.C. 1601 et seq., and
Regulation Z, 12 CFR part 1026, or the term
‘‘lender’’ as defined in Regulation X, 12 CFR part
1024.
22 See Beechum, 2016 WL 5340454; Lender,
Black’s Law Dictionary (11th ed. 2019) (‘‘A person
or entity from which something (esp. money) is
borrowed.’’).
23 See, e.g., OCC Interpretive Letter 1002 (May 13,
2004) (discussing ‘‘table funding’’ arrangements).
24 As discussed previously, while courts have
relied on a multitude of factors to evaluate which
party has the predominant economic interest in a
loan, the OCC believes that such a fact-specific
analysis is unnecessarily complex and
unpredictable.
25 See, e.g., supra note 17 and accompanying text.
26 The OCC is also considering how the two
standards interact and may revise its test if this
interaction creates challenges in determining which
party makes a loan.
27 As the OCC has previously stated, ‘‘[a] bank’s
use of third parties does not diminish the
responsibility of its board of directors and senior
management to ensure that the activity is performed
in a safe and sound manner and in compliance with
applicable laws.’’ OCC Bulletin 2013–29. But see
supra note 21.
28 Depending on the structure of the bank and the
activities it conducts, other regulators may have
oversight roles as well. For example, the Consumer
Financial Protection Bureau has exclusive
supervisory authority and primary enforcement
authority for Federal consumer financial laws for
banks that are insured depository institutions and
have assets greater than $10 billion. See 12 U.S.C.
5515. The OCC generally has exclusive supervisory
and enforcement authority for banks with assets of
$10 billion or less. See 12 U.S.C. 5516,
5581(c)(1)(B).
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III. Consequences of the Bank as Lender
A key objective of this proposal is to
provide regulatory clarity and certainty
that would enable banks and their
partners to lend in a manner consistent
with their business objectives and risk
appetite and in compliance with
applicable laws and regulations. As
noted previously, identifying the lender
would pinpoint key elements of the
statutory, regulatory, and supervisory
framework applicable to the loan in
question. Specifically, when a bank
makes a loan, it is responsible for
ensuring that the loan is made both in
a safe and sound manner and in
accordance with applicable laws and
regulations, even if the loan is made in
the context of a third-party partnership
and even if the bank’s partner is the
customer-facing entity.27 As the bank’s
prudential regulator, the OCC directly
supervises these lending activities.28
The OCC also ensures that the bank has
instituted appropriate safeguards to
manage the risks associated with the
partnership.
While the OCC’s prudential oversight
of bank lending is multifaceted, it
includes ensuring that the bank has
prudent underwriting standards and
loan documentation policies and
procedures. In this regard, the OCC
expects all banks to establish and
maintain prudent credit underwriting
practices that: (1) Are commensurate
with the types of loans the bank will
make and consider the terms and
conditions under which they will be
made; (2) consider the nature of the
markets in which the loans will be
made; (3) provide for consideration,
prior to credit commitment, of the
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borrower’s overall financial condition
and resources, the financial
responsibility of any guarantor, the
nature and value of any underlying
collateral, and the borrower’s character
and willingness to repay as agreed; (4)
establish a system of independent,
ongoing credit review and appropriate
communication to management and to
the board of directors; (5) take adequate
account of concentration of credit risk;
and (6) are appropriate to the size of the
institution and the nature and scope of
its activities.29 Moreover, banks are also
expected to have loan documentation
practices that: (1) Enable the institution
to make an informed lending decision
and assess risk, as necessary, on an
ongoing basis; (2) identify the purpose
of a loan and the source of repayment,
and assess the ability of the borrower to
repay the indebtedness in a timely
manner; (3) ensure that any claim
against a borrower is legally enforceable;
(4) demonstrate appropriate
administration and monitoring of a loan;
and (5) take account of the size and
complexity of a loan.30 A bank should
also have appropriate internal controls
and information systems to assess and
manage the risks associated with its
lending activities, including monitoring
adherence to established policies, as
well as internal audit systems.31
In addition, a bank’s lending must be
done in compliance with other
applicable laws and regulations,
including Federal consumer protection
laws. For example, section 5 of the
Federal Trade Commission Act (FTC
Act) provides that ‘‘unfair or deceptive
acts or practices in or affecting
commerce’’ are unlawful.32 The DoddFrank Wall Street Reform and Consumer
Protection Act also prohibits unfair,
deceptive, or ‘‘abusive’’ acts or
29 12 CFR part 30, appendix A, § II.D; see 12 CFR
part 34, appendix A to subpart D.
30 12 CFR part 30, appendix A, § II.C.
31 Id. at §§ II.A and II.B.
32 15 U.S.C. 45(a)(1), 45(n). OCC regulations
regarding non-real estate and real estate lending, as
well as the OCC’s enforceable ‘‘Guidelines
Establishing Standards for Residential Mortgage
Lending Practices,’’ expressly reference the FTC Act
standards. See 12 CFR 7.4008(c), 34.3(c), part 30,
appendix C. Further, OCC guidance directly
addresses unfair or deceptive acts or practices with
respect to banks. See OCC Advisory Letter 2002–3,
‘‘Guidance on Unfair or Deceptive Acts or
Practices’’ (Mar. 22, 2002); OCC Advisory Letter
2003–2, ‘‘Guidelines for National Banks to Guard
Against Predatory and Abusive Lending Practices’’
(Feb. 21, 2003); OCC Advisory Letter 2003–3,
‘‘Avoiding Predatory and Abusive Lending
Practices in Brokered and Purchased Loans’’ (Feb.
21, 2003); and OCC Bulletin 2014–37, ‘‘Risk
Management Guidance: Consumer Debt Sales’’
(Aug. 4, 2014).
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practices.33 The OCC recently issued a
new booklet of the Comptroller’s
Handbook to provide guidance to
examiners about the risks of banks and
third parties engaging in lending,
marketing, or other practices that may
constitute unfair or deceptive acts or
practices or unfair, deceptive, or abusive
acts or practices.34 The OCC has taken
a number of public enforcement actions
against banks for violating section 5 of
the FTC Act, including for failure to: (1)
Provide sufficient information to allow
consumers to understand the terms of
the product or service being offered; (2)
adequately disclose when significant
fees or similar material prerequisites are
imposed in order to obtain the
particular product or service being
offered; and (3) adequately disclose
material limitations affecting the
product or service being offered.35 The
agency will continue to exercise its
enforcement authority to address
unlawful actions.
Banks also are subject to Federal fair
lending laws and may not engage in
unlawful discrimination, such as
‘‘steering’’ a borrower to a higher cost
loan on the basis of the borrower’s race,
national origin, age, or gender. If a bank
engages in any unlawful discriminatory
practices, the OCC will take appropriate
action under the Federal fair lending
laws.36 Further, under the Community
Reinvestment Act (CRA) regulations,
evidence of discriminatory or other
illegal credit practices adversely affect a
bank’s CRA performance rating.37
The OCC has also taken significant
steps to eliminate predatory, unfair, or
deceptive practices in the Federal
banking system, recognizing that
‘‘[s]uch practices are inconsistent with
important national objectives, including
the goals of fair access to credit,
community development, and stable
homeownership by the broadest
spectrum of America.’’ 38 To address
these concerns, the OCC requires banks
engaged in lending to take into account
33 Public Law 111–203, tit. X, sections 1031 and
1036, 124 Stat. 2005, 2010 (codified at 12 U.S.C.
5531 and 5536).
34 Office of the Comptroller of the Currency,
Comptroller’s Handbook, ‘‘Consumer Compliance,
Unfair or Deceptive Acts or Practices and Unfair,
Deceptive, or Abusive Acts or Practices’’ (June
2020).
35 Recent OCC enforcement actions can be found
on the OCC’s website at https://www.occ.gov/
topics/laws-and-regulations/enforcement-actions/
index-enforcement-actions.html.
36 See 15 U.S.C. 1691; 42 U.S.C. 3601 et seq. As
noted above, supra note 28, other regulators may
have oversight roles as well and can take
appropriate enforcement action to address unlawful
action within their jurisdiction.
37 See 12 CFR 25.28(c); 12 CFR 25.17 (effective
Oct. 1, 2020).
38 OCC Advisory Letter 2003–2.
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the borrower’s ability to repay the loan
according to its terms.39 In the OCC’s
experience, ‘‘a departure from
fundamental principles of loan
underwriting generally forms the basis
of abusive lending: lending without a
determination that a borrower can
reasonably be expected to repay the loan
from resources other than the collateral
securing the loan, and relying instead
on the foreclosure value of the
borrower’s collateral to recover
principal, interest, and fees.’’ 40
Additionally, the OCC has cautioned
banks about lending activities that may
be considered predatory, unfair, or
deceptive, noting that many such
lending practices are unlawful under
existing Federal laws and regulations or
otherwise present significant safety,
soundness, or other risks. These
practices include those that target
prospective borrowers who cannot
afford credit on the terms being offered,
provide inadequate disclosures of the
true costs and risks of transactions,
involve loans with high fees and
frequent renewals, or constitute loan
‘‘flipping’’ (frequent re-financings that
result in little or no economic benefit to
the borrower that are undertaken with
the primary or sole objective of
generating additional fees).41 Policies
and procedures should also be designed
to ensure clear and transparent
disclosure of the terms of the loan,
including relative costs, risks, and
benefits of their loan transaction, which
helps to mitigate the risk that a
transaction could be unfair or deceptive.
The OCC believes that the applicable
statutes and regulations, enforceable
guidelines, and other issuances include
appropriate safeguards with respect to a
bank’s use of its lending power and are
also appropriate to consider in the
context of a lending partnership. While
partnerships provide benefits, including
expanding access to affordable credit,
they may also pose legitimate safety and
soundness concerns and raise questions
regarding banks’ involvement in
activities that may not be consistent
with applicable laws and regulations, if
they are not appropriately managed. In
this regard, the OCC believes it is
appropriate to re-emphasize that ‘‘any
lending practices that take unfair
advantage of borrowers, or that have a
detrimental impact on communities
. . . conflict with the high standards
39 See 12 CFR 7.4008(b), 34.3(b), part 30,
appendix A, §§ II.C.2 and II.D.3.
40 OCC Advisory Letter 2003–2.
41 See OCC Advisory Letter 2000–7, ‘‘Abusive
Lending Practices’’ (July 25, 2000); OCC Advisory
Letter 2000–10, ‘‘Payday Lending’’ (Nov. 27, 2000);
OCC Advisory Letter 2003–2; OCC Advisory Letter
2003–3; and OCC Bulletin 2014–37.
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Federal Register / Vol. 85, No. 141 / Wednesday, July 22, 2020 / Proposed Rules
expected of [banks].’’ 42 To ensure that
banks operate consistent with these
principles, the OCC evaluates the
following as part of its routine
supervision of a bank’s lending
relationships with third parties:
• Does the bank appropriately
manage the risks associated with its
third-party relationships, including
through policies and procedures that
ensure adherence to the bank’s risk
appetite and tolerances and by
appropriate ongoing monitoring of the
third party’s relevant activities? 43
• Are the underwriting criteria for
loans made by the bank as part of thirdparty relationships consistent with
criteria the bank would use for loans
made without a third party? 44
Æ If the underwriting criteria differs,
are these underwriting criteria
consistent with applicable law,
including 12 CFR part 30, Appendix A,
and with safety and soundness?
• Are the terms and structures of the
bank’s loan appropriate for the
borrower? Are the lending practices
appropriate? 45
Æ Are there characteristics, structures,
or practices that make it difficult or
impossible for a borrower to reduce or
repay its indebtedness (e.g., repeated
capitalization of interest; extended
negative amortization; or a single
payment or balloon payment)?
Æ Are borrowers forced into costly
rollovers, renewals, or refinancing
transactions that are likely to result in
debt traps or ongoing cycles of debt?
• Are the bank’s overall returns on
the loans reasonably related to the
bank’s risks and costs of the loans (e.g.,
the total credit costs on short term
loans, such as 12- to 36- month loans,
are not substantial in relation to, or do
not exceed, the principal amount of the
loan)? 46
• Do disclosures provide sufficient
information to draw the borrower’s
attention to key terms and to enable the
borrower to determine whether the loan
meets their particular financial
circumstances and needs? For example,
would a borrower who is not financially
sophisticated or who is otherwise
vulnerable to abusive practices
understand the terms of the loan,
42 OCC
jbell on DSKBBXCHB2PROD with PROPOSALS
43 See,
Advisory Letter 2003–2.
e.g., OCC Bulletin 2013–29; OCC Bulletin
2020–10.
44 See, e.g., 12 CFR part 30, appendix A, § II; OCC
Bulletin 2013–29; OCC Bulletin 2020–10.
45 See, e.g., OCC Advisory Letter 2000–7; OCC
Advisory Letter 2000–10; OCC Advisory Letter
2003–2; OCC Advisory Letter 2003–3.
46 See, e.g., Interagency Lending Principles for
Offering Responsible Small-Dollar Loans (May
2020); OCC Advisory Letter 2000–7.
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including the loan’s relative costs, risks,
and benefits? 47
In addition to the consequences
described above, the proposal would
operate together with the OCC’s recently
finalized Madden-fix rule to provide
greater clarity to banks regarding their
lending activities.48 Once it is
determined that a loan has, in fact, been
made by a bank under the clear
standards set out in this proposal, the
applicable Federal legal framework (1)
determines the interest permitted on the
loan, pursuant to 12 U.S.C. 85 and
1463(g), and (2) permits the loan to be
subsequently sold, assigned, or
otherwise transferred without affecting
the interest term, pursuant to the
Madden-fix rule. This clarity would
enable banks to more effectively and
efficiently work with other market
participants to manage their risks and
leverage their balance sheets to meet
customers’ needs for affordable credit.
IV. 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
notice of proposed rulemaking and
determined that it would not introduce
any new or revise any existing
collection of information pursuant to
the PRA. Therefore, no submission will
be made to OMB for review.
Regulatory Flexibility Act. The
Regulatory Flexibility Act (RFA), 5
U.S.C. 601 et seq., requires an agency,
in connection with a proposed rule, to
prepare an Initial 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 of less) or
to certify that the proposed rule would
not have a significant economic impact
on a substantial number of small
entities. The OCC currently supervises
approximately 745 small entities. The
OCC expects that all of these small
entities would be impacted by the rule.
While this proposal could affect how
banks structure their current or future
third-party relationships, the OCC does
47 See, e.g., OCC Advisory Letter 2003–2; OCC
Advisory Letter 2000–10.
48 See supra note 17.
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44227
not expect that these adjustments would
involve an extraordinary demand on a
bank’s human resources. Banks already
have systems, policies, and procedures
in place for issuing loans when third
parties are involved, and it takes
significantly less time to amend existing
policies than to create them. In addition,
any costs would likely be absorbed as
ongoing administrative expenses. Based
on this, the OCC believes the costs
associated with any administrative
changes in bank lending policies and
procedures would be de minimis.
Furthermore, legal certainty about
whether a loan is made by a bank may
encourage some banks to engage in new
lending relationships or to expand their
existing lending relationships. However,
as noted, we do not expect the
accompanying costs to be substantial.
Therefore, the OCC anticipates that
costs, if any, will be de minimis and
certifies that this rule, if adopted, would
not have a significant economic impact
on a substantial number of small
entities. Accordingly, a Regulatory
Flexibility Analysis is not required.
Unfunded Mandates Reform Act.
Consistent with the Unfunded Mandates
Reform Act of 1995 (UMRA), 2 U.S.C.
1532, the OCC considers whether the
proposed 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 adjusted
for inflation (currently $157 million) in
any one year. The proposed rule does
not impose new mandates. Therefore,
the OCC concludes that implementation
of the proposed rule would not result in
an expenditure of $157 million 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
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Federal Register / Vol. 85, No. 141 / Wednesday, July 22, 2020 / Proposed Rules
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. Although the proposed
rule does not impose additional
reporting, disclosures, or other new
requirements on insured depository
institutions, the OCC invites comments
that will inform its consideration of the
administrative burdens and the benefits
of its proposal, as well as the effective
date of the final rule.
BUREAU OF CONSUMER FINANCIAL
PROTECTION
List of Subjects in 12 CFR Part 7
SUMMARY:
Computer technology, Credit,
Derivatives, Federal savings
associations, Insurance, Investments,
Metals, National banks, Reporting and
recordkeeping requirements, Securities,
Security bonds.
Office of the Comptroller of the
Currency
For the reasons set out in the
preamble, the OCC proposes to amend
12 CFR part 7 as follows.
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).
■
2. Add § 7.1031 to read as follows:
§ 7.1031 National banks and Federal
savings associations as lenders.
jbell on DSKBBXCHB2PROD with PROPOSALS
For purposes of sections 5136 and
5197 of the Revised Statutes (12 U.S.C.
24 and 12 U.S.C. 85), section 24 of the
Federal Reserve Act (12 U.S.C. 371), and
sections 4(g) and 5(c) of the Home
Owners’ Loan Act (12 U.S.C. 1463(g)
and 12 U.S.C. 1464(c)), a national bank
or Federal savings association makes a
loan when the national bank or Federal
savings association, as of the date of
origination:
(a) Is named as the lender in the loan
agreement; or
(b) Funds the loan.
Brian P. Brooks,
Acting Comptroller of the Currency.
[FR Doc. 2020–15997 Filed 7–21–20; 8:45 am]
BILLING CODE 4810–33–P
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Jkt 250001
12 CFR Part 1026
[Docket No. CFPB–2020–0023]
RIN 3170–AA83
Higher-Priced Mortgage Loan Escrow
Exemption (Regulation Z)
Bureau of Consumer Financial
Protection.
ACTION: Proposed rule with request for
public comment.
AGENCY:
The Bureau of Consumer
Financial Protection (Bureau) is
proposing to amend Regulation Z,
which implements the Truth in Lending
Act, as mandated by section 108 of the
Economic Growth, Regulatory Relief,
and Consumer Protection Act. The
amendments would exempt certain
insured depository institutions and
insured credit unions from the
requirement to establish escrow
accounts for certain higher-priced
mortgage loans.
DATES: Comments on the proposed rule
must be received on or before
September 21, 2020.
ADDRESSES: You may submit responsive
information and other comments,
identified by Docket No. CFPB–2020–
0023 or RIN 3170–AA83, by any of the
following methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Email: 2020-NPRMEscrowExemption@cfpb.gov. Include
Docket No. CFPB–2020–0023 or RIN
3170–AA83 in the subject line of the
message.
• Mail/Hand Delivery/Courier:
Comment Intake—Higher-Priced
Mortgage Loan Escrow Exemption,
Bureau of Consumer Financial
Protection, 1700 G Street NW,
Washington, DC 20552. Please note that
due to circumstances associated with
the COVID–19 pandemic, the Bureau
discourages the submission of
comments by mail, hand delivery, or
courier.
Instructions: The Bureau encourages
the early submission of comments. All
submissions should include the agency
name and docket number or Regulatory
Information Number (RIN) for this
rulemaking. Because paper mail in the
Washington, DC area and at the Bureau
is subject to delay, and in light of
difficulties associated with mail and
hand deliveries during the COVID–19
pandemic, commenters are encouraged
to submit comments electronically. In
general, all comments received will be
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posted without change to https://
www.regulations.gov. In addition, once
the Bureau’s headquarters reopens,
comments will be available for public
inspection and copying at 1700 G Street
NW, Washington, DC 20552, on official
business days between the hours of
10:00 a.m. and 5:00 p.m. Eastern Time.
At that time, you can make an
appointment to inspect the documents
by telephoning 202–435–9169.
All comments, including attachments
and other supporting materials, will
become part of the public record and
subject to public disclosure. Proprietary
information or sensitive personal
information, such as account numbers
or Social Security numbers, or names of
other individuals, should not be
included. Comments will not be edited
to remove any identifying or contact
information.
FOR FURTHER INFORMATION CONTACT:
Joseph Devlin, Senior Counsel, Office of
Regulations, at 202–435–7700 or https://
reginquiries.consumerfinance.gov/. If
you require this document in an
alternative electronic format, please
contact CFPB_Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
I. Summary of the Proposed Rule
Regulation Z, 12 CFR part 1026,
implements the Truth in Lending Act
(TILA), 15 U.S.C. 1601 et seq., and
includes a requirement that creditors
establish an escrow account for certain
higher-priced mortgage loans (HPMLs),1
along with certain exemptions from this
requirement.2 In the 2018 Economic
Growth, Regulatory Relief, and
Consumer Protection Act (EGRRCPA),3
Congress required the Bureau to issue
regulations to add a new exemption
from TILA’s escrow requirement that
exempts transactions by certain insured
depository institutions and insured
credit unions. The proposed rule would
implement the EGRRCPA section 108
statutory directive, and would also
remove certain obsolete text from the
1 12 CFR 1026.35(a) and (b). An HPML is defined
in 12 CFR 1026.35(a)(1) and generally means a
closed-end consumer credit transaction secured by
the consumer’s principal dwelling with an annual
percentage rate (APR) that exceeds the average
prime offer rate (APOR) for a comparable
transaction as of the date the interest rate is set by
(1) 1.5 percentage points or more for a first-lien
transaction at or below the Freddie Mac conforming
loan limit; (2) 2.5 percentage points or more for a
first-lien transaction above the Freddie Mac
conforming loan limit; or (3) 3.5 percentage points
or more for a subordinate-lien transaction. The
escrow requirement only applies to first-lien
HPMLs.
2 12 CFR 1026.35(b)(2)(i) and (iii).
3 Public Law 115–174, 132 Stat. 1296 (2018).
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]]>Agencies
[Federal Register Volume 85, Number 141 (Wednesday, July 22, 2020)]
[Proposed Rules]
[Pages 44223-44228]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-15997]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 85, No. 141 / Wednesday, July 22, 2020 /
Proposed Rules
[[Page 44223]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 7
[Docket ID OCC-2020-0026]
RIN 1557-AE97
National Banks and Federal Savings Associations as Lenders
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Office of the Comptroller of the Currency (OCC) is
proposing a regulation to determine when a national bank or Federal
savings association (bank) makes a loan and is the ``true lender'' in
the context of a partnership between a bank and a third party, such as
a marketplace lender. Under this proposal, a bank makes a loan if, as
of the date of origination, it is named as the lender in the loan
agreement or funds the loan.
DATES: Comments must be received on or before September 3, 2020.
ADDRESSES: Commenters are encouraged to submit comments through the
Federal eRulemaking Portal or email, if possible. Please use the title
``National Banks and Federal Savings Associations as Lenders'' to
facilitate the organization and distribution of the comments. You may
submit comments by any of the following methods:
Federal eRulemaking Portal--Regulations.gov Classic or
Regulations.gov Beta.
Regulations.gov Classic: Go to https://www.regulations.gov/. Enter
``Docket ID OCC-2020-0026'' in the Search Box and click ``Search.''
Click on ``Comment Now'' to submit public comments. For help with
submitting effective comments, please click on ``View Commenter's
Checklist.'' Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov, including instructions for
submitting public comments.
Regulations.gov Beta: Go to https://beta.regulations.gov/ or click
``Visit New Regulations.gov Site'' from the Regulations.gov classic
homepage. Enter ``Docket ID OCC-2020-0026'' in the Search Box and click
``Search.'' Public comments can be submitted via the ``Comment'' box
below the displayed document information or click on the document title
and click the ``Comment'' box on the top-left side of the screen. For
help with submitting effective comments, please click on ``Commenter's
Checklist.'' For assistance with the Regulations.gov Beta site, please
call (877)-378-5457 (toll free) or (703) 454-9859 Monday-Friday, 9
a.m.-5 p.m. ET or email to [email protected].
Email: [email protected].
Mail: Chief Counsel's Office, Attention: Comment
Processing, Office of the Comptroller of the Currency, 400 7th Street
SW, Suite 3E-218, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
Washington, DC 20219.
Fax: (571) 465-4326.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2020-0026'' in your comment. In general, the OCC will
enter all comments received into the docket and publish the comments on
the Regulations.gov website without change, including any business or
personal information provided such as name and address information,
email addresses, or phone numbers. Comments, including attachments and
other supporting materials, are part of the public record and subject
to public disclosure. Do not include any information in your comment or
supporting materials that you consider confidential or inappropriate
for public disclosure.
You may review comments and other related materials that pertain to
this rulemaking action by any of the following methods:
Viewing Comments Electronically--Regulations.gov Classic
or Regulations.gov Beta: Regulations.gov Classic: Go to https://www.regulations.gov/. Enter ``Docket ID OCC-2020-0026'' in the Search
box and click ``Search.'' Click on ``Open Docket Folder'' on the right
side of the screen. Comments and supporting materials can be viewed and
filtered by clicking on ``View all documents and comments in this
docket'' and then using the filtering tools on the left side of the
screen. Click on the ``Help'' tab on the Regulations.gov home page to
get information on using Regulations.gov. The docket may be viewed
after the close of the comment period in the same manner as during the
comment period. Regulations.gov Beta: Go to https://beta.regulations.gov/ or click ``Visit New Regulations.gov Site'' from
the Regulations.gov classic homepage. Enter ``Docket ID OCC 2020-0026''
in the Search Box and click ``Search.'' Click on the ``Comments'' tab.
Comments can be viewed and filtered by clicking on the ``Sort By''
drop-down on the right side of the screen or the ``Refine Results''
options on the left side of the screen. Supporting Materials can be
viewed by clicking on the ``Documents'' tab and filtered by clicking on
the ``Sort By'' drop-down on the right side of the screen or the
``Refine Results'' options on the left side of the screen.'' For
assistance with the Regulations.gov Beta site please call (877) 378-
5457 (toll free) or (703) 454-9859 Monday-Friday, 9a.m.-5p.m. ET or
email to [email protected]. The docket may be viewed
after the close of the comment period in the same manner as during the
comment period.
FOR FURTHER INFORMATION CONTACT: Andra Shuster, Senior Counsel, Karen
McSweeney, Special Counsel, Alison MacDonald, Special Counsel, or
Priscilla Benner, Senior Attorney, Chief Counsel's Office, (202) 649-
5490, Office of the Comptroller of the Currency, 400 7th Street SW,
Washington, DC 20219. For persons who are deaf or hearing impaired, TTY
users may contact (202) 649-5597.
SUPPLEMENTARY INFORMATION:
I. Introduction
The U.S. economy relies on access to affordable credit to fuel
economic growth and job creation. Americans rely on affordable credit
to reach goals large and small, ranging from purchasing consumer goods,
cars, and homes to starting or growing small businesses. While national
banks and Federal savings associations (banks) play a critical role in
supplying this credit, the financial system is most efficient when
banks work effectively with other market participants to meet
customers'
[[Page 44224]]
credit needs. These relationships allow banks to manage their risks and
leverage their balance sheets to increase the supply of available
credit in ways they would not be able to if they were acting alone.
One way that banks achieve this efficiency is by selling loans to
third parties and using the proceeds from these sales to make
additional loans.\1\ For example, credit card securitization allows a
bank to originate very large loan pools for a diverse customer base at
lower rates than if the bank had to fund the loans on its balance
sheet.\2\ By removing the assets and supporting debt from its balance
sheet, the bank is able to save some of the costs of on-balance-sheet
financing and manage potential asset-liability mismatches and credit
concentrations.\3\ Bank customers benefit from the increased
availability of credit these securitization relationships provide.\4\
---------------------------------------------------------------------------
\1\ Conversely, banks may invest in loans made by third parties,
which provides the third parties with additional capital to make new
loans.
\2\ Office of the Comptroller of the Currency, Comptroller's
Handbook, ``Asset Securitization'' at 5 (Nov. 1997).
\3\ Id. at 2.
\4\ Id. at 4-5.
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Lending relationships with third parties can also help banks meet
customers' need for affordable credit, including the needs of unbanked
or underbanked individuals.\5\ For example, these relationships can
enable banks to market affordable loan products to a wider range of
potential customers or to develop or acquire innovative credit
underwriting models that facilitate expanded access to credit. Banks
can also work with third parties to develop responsible lending
programs to help customers meet credit needs, including small-dollar
lending programs designed to assist with cash-flow imbalances,
unexpected expenses, or income shortfalls.\6\
---------------------------------------------------------------------------
\5\ Many relationships between banks and third parties address
core banking functions other than lending (i.e., making payments and
taking deposits). See, e.g., 12 CFR 5.20(e). However, relationships
that do not involve making loans are beyond the scope of this
rulemaking. In addition, for purposes of this rulemaking, references
to partnerships are not limited to legal partnerships and include a
variety of other arrangements through which banks can work with
third parties. This rulemaking uses the terms partnership and
relationship interchangeably.
\6\ See Interagency Lending Principles for Offering Responsible
Small-Dollar Loans (May 2020); Joint Statement Encouraging
Responsible Small-Dollar Lending in Response to COVID-19 (Mar.
2020).
---------------------------------------------------------------------------
While these lending relationships can be effective tools to
facilitate affordable access to credit, there has been increasing
uncertainty about the legal framework that applies to the loans made as
part of these relationships. This uncertainty may discourage banks and
third parties from entering into relationships, limit competition, and
chill the innovation that results from these partnerships--all of which
may restrict access to affordable credit.
Federal law authorizes banks to enter into contracts, to make
loans, and to subsequently transfer these loans and assign loan
contracts.\7\ These statutes, however, do not specifically address
which entity makes a loan (or, in the vernacular commonly used in case
law, which entity is the ``true lender'') and, therefore, what legal
framework applies, when the loan is originated as part of a lending
relationship between a bank and a third party. Furthermore, the OCC has
not previously taken regulatory action to resolve this ambiguity. In
the absence of regulatory action, courts are left to determine when, in
a lending partnership, a bank is making the loan and when its partner
makes the loan.
---------------------------------------------------------------------------
\7\ See 12 U.S.C. 24(Third), 24(Seventh), 371, 1464; see also 12
CFR 7.4008, 34.3, 160.30.
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A growing body of case law has introduced divergent standards for
resolving this issue. In some cases, the court has concluded that the
form of the transaction alone resolves this issue.\8\ Under this
analysis, the lender is the entity named in the loan agreement.
---------------------------------------------------------------------------
\8\ See, e.g., Beechum v. Navient Solutions, Inc., No. EDCV 15-
8239-JGB-KKx, 2016 WL 5340454, at *8 (C.D. Cal. Sept. 20, 2016)
(holding that the court will look ``only to the face of the
transactions at issue'').
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In other cases, the courts have applied fact-intensive balancing
tests,\9\ in which they have considered a multitude of factors,
including: (1) How long the entity named as the lender holds the loan
before selling it to the third party; \10\ (2) whether the third party
advances money that the named lender draws on to make loans; \11\ (3)
whether the third party guarantees minimum payments or fees to the
named lender; \12\ (4) whether the third party agrees to indemnify the
named lender; \13\ and (5) how loans are treated for financial
reporting purposes.\14\ However, no factor is dispositive, nor are the
factors assessed based on any predictable, bright-line standard. Even
when nominally engaged in the same analysis--determining which entity
has the ``predominant economic interest'' in the transaction--courts do
not necessarily consider all of the same factors or give each factor
the same weight.\15\ These fact-intensive inquiries, coupled with the
lack of a uniform and predictable standard, increase the subjectivity
in determining who is the true lender and undermine banks' ability to
partner with third parties to lend across jurisdictions on a nationwide
basis.
---------------------------------------------------------------------------
\9\ See, e.g., CFPB v. CashCall, Inc., No. CV 15-7522-JFW, 2016
WL 4820635, at *5-*6 (C.D. Cal. Aug. 31, 2016) (examining ``which
party or entity has the predominant economic interest in the
transaction,'' including by evaluating which party placed its money
at risk).
\10\ Id. at *6 (concluding that the third party was the true
lender, including because ``[a]lthough [the third party] waited a
minimum of three days after the funding of each loan before
purchasing it, it is undisputed that [the third party] purchased
each and every loan before any payments on the loan had been
made.''); CashCall, Inc. v. Morrisey, No. 12-1274, 2014 WL 2404300,
at *1, *7 (W.Va. May 30, 2014) (noting that the third party
purchased loans within three days of origination but not clearly
indicating whether this fact was considered as part of the
predominant economic interest analysis); Sawyer v. Bill Me Later,
Inc., 23 F. Supp. 3d 1359, 1369 (D. Utah 2014) (noting that the
named lender was the real party in interest, including because it
``holds the credit receivables for two days'').
\11\ See, e.g., CFPB v. CashCall, 2016 WL 4820635, at *6 (``It
is undisputed that [the third party] deposited enough money into a
reserve account to fund two days of loans, calculated on the
previous month's daily average and that [the named lender] used this
money to fund consumer loans.'').
\12\ See, e.g., id. at *2 (``[The third party] guaranteed [the
named lender] a minimum payment of $100,000 per month, as well as a
$10,000 monthly administrative fee.'').
\13\ See, e.g., id. at *3 (``[The third party] agreed to `fully
indemnify [the named lender] for all costs arising or resulting from
any and all civil, criminal or administrative claims or actions . .
. .' ''); CashCall v. Morrisey, 2014 WL 2404300, at *7 (noting that
the Circuit Court found that the third party agreed to indemnify the
named lender).
\14\ CashCall v. Morrisey, 2014 WL 2404300, at *7 (noting that
loans were treated as if they were funded by the third party for
financial reporting purposes).
\15\ Compare CFPB v. CashCall, 2016 WL 4820635, with CashCall v.
Morrisey, 2014 WL 2404300.
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As a result of this legal uncertainty, stakeholders cannot reliably
determine which entity makes a loan, and therefore, the applicability
of key aspects of the legal framework as of the date of origination is
unclear. For example, Federal law establishes the interest a bank may
charge on any loan it makes and authorizes the bank to export that rate
from the state in which it is located to borrowers in other states.\16\
While the OCC recently clarified that interest permissible on a loan
made by a bank is not affected by the subsequent sale, assignment, or
other transfer of the loan,\17\ uncertainty remains regarding how to
determine if a loan is, in fact, made by a bank as opposed to by its
relationship partner.
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\16\ See 12 U.S.C. 85, 1463(g); 12 CFR 7.4001, 160.110.
\17\ 12 CFR 7.4001(e), 160.110(d) (effective Aug. 3, 2020);
Permissible Interest on Loans That Are Sold, Assigned, or Otherwise
Transferred, 85 FR 33,530 (June 2, 2020) (Madden-fix rule).
---------------------------------------------------------------------------
To address this uncertainty, the OCC is proposing a clear test to
determine when a bank makes a loan. In doing so, the OCC is fulfilling
its responsibility to resolve ambiguities in the Federal banking laws
it is charged with administering and ensuring clarity and
[[Page 44225]]
uniformity for the banks it supervises.\18\ The OCC's proposed rule
would enable banks to fully exercise the lending authority granted to
them under Federal law and allow stakeholders to reliably and
consistently identify key aspects of the legal framework applicable to
a loan. When a bank makes a loan, a robust Federal framework applies to
ensure that banks are lending in a safe and sound manner and in
compliance with applicable laws and regulations, and the OCC is the
prudential regulator of the bank's lending activities. Additionally, if
the bank makes the loan in the context of a relationship with a third
party, the OCC ensures that the bank has instituted appropriate
safeguards to manage the associated risks.\19\ In contrast, if a third
party makes a loan as part of a relationship with a bank, the OCC is
not the prudential regulator of the lending activity, though it still
assesses the bank's third-party risk management in connection with the
relationship itself.\20\
---------------------------------------------------------------------------
\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 12 U.S.C. 93a (OCC authority to
prescribe rules and regulations).
\19\ See, e.g., 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).
\20\ See supra note 19.
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II. Description of the Proposal
Several provisions of Federal banking law grant banks the authority
to make loans. Specifically, section 5136 of the Revised Statutes (12
U.S.C. 24) provides that a national bank may engage in the business of
banking, including by ``loaning money.'' Section 24 of the Federal
Reserve Act (12 U.S.C. 371) states that a national bank may ``make . .
. loans,'' and section 5(c) (12 U.S.C. 1464(c)) of the Home Owners'
Loan Act states that a Federal savings association may ``invest in,
sell, or otherwise deal in . . . loans.'' Although each statute uses
slightly different language to authorize banks to extend credit, none
describes how to determine when a bank has, in fact, exercised this
authority, and when, by contrast, the bank's relationship partner has
made the loan. In light of this statutory ambiguity, the OCC has
concluded, for the reasons set forth below, that it is reasonable to
interpret these statutes to provide that a bank makes a loan whenever
it, as of the date of origination, (1) is named as the lender in the
loan agreement or (2) funds the loan.\21\
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\21\ This proposal also interprets 12 U.S.C. 85 and 1463(g),
which govern the interest permitted on bank loans. This proposal
would not, however, affect the application of Federal consumer
financial laws. For example, this proposal would not affect the
meaning of the term ``creditor'' as used in the Truth in Lending
Act, 15 U.S.C. 1601 et seq., and Regulation Z, 12 CFR part 1026, or
the term ``lender'' as defined in Regulation X, 12 CFR part 1024.
---------------------------------------------------------------------------
If a bank is named in the loan agreement as the lender as of the
date of origination, the OCC views this imprimatur as conclusive
evidence that the bank is exercising its authority to make loans
pursuant to the statutes cited above and has elected to subject itself
to the panoply of applicable Federal laws and regulations (including
but not limited to consumer protection laws) governing lending by
banks.\22\
---------------------------------------------------------------------------
\22\ See Beechum, 2016 WL 5340454; Lender, Black's Law
Dictionary (11th ed. 2019) (``A person or entity from which
something (esp. money) is borrowed.'').
---------------------------------------------------------------------------
There are also circumstances in which a bank is not named as the
lender in the loan agreement but is still, in the OCC's view, making
the loan.\23\ To ensure that the OCC's rule would capture these
circumstances, the agency is proposing a second standard based on which
party funded the loan. Under this standard, if a bank funds a loan as
of the date of origination, the OCC concludes that it has a predominant
economic interest in the loan and, therefore, has made the loan--
regardless of whether it is the named lender in the loan agreement as
of the date of origination.\24\ Under the OCC's proposal, the
determination of which entity made the loan under the above standards
would be complete as of the date the loan is originated and would not
change, even if the bank were to subsequently transfer the loan.\25\
---------------------------------------------------------------------------
\23\ See, e.g., OCC Interpretive Letter 1002 (May 13, 2004)
(discussing ``table funding'' arrangements).
\24\ As discussed previously, while courts have relied on a
multitude of factors to evaluate which party has the predominant
economic interest in a loan, the OCC believes that such a fact-
specific analysis is unnecessarily complex and unpredictable.
\25\ See, e.g., supra note 17 and accompanying text.
---------------------------------------------------------------------------
Therefore, the OCC proposes that, for purposes of sections 5136 and
5197 of the Revised Statutes (12 U.S.C. 24 and 12 U.S.C. 85), section
24 of the Federal Reserve Act (12 U.S.C. 371), and sections 4(g) and
5(c) the Home Owners' Loan Act (12 U.S.C. 1463(g) and 12 U.S.C.
1464(c)), a bank makes a loan when, as of the date of origination, it
(1) is named as lender in the loan agreement or (2) funds the loan.
The OCC invites comments on all aspects of this proposal, including
whether there are additional lending arrangements that should be
captured by the OCC's standards for determining when a bank makes a
loan and whether the proposed standards would capture lending
arrangements that should be excluded.\26\
---------------------------------------------------------------------------
\26\ The OCC is also considering how the two standards interact
and may revise its test if this interaction creates challenges in
determining which party makes a loan.
---------------------------------------------------------------------------
III. Consequences of the Bank as Lender
A key objective of this proposal is to provide regulatory clarity
and certainty that would enable banks and their partners to lend in a
manner consistent with their business objectives and risk appetite and
in compliance with applicable laws and regulations. As noted
previously, identifying the lender would pinpoint key elements of the
statutory, regulatory, and supervisory framework applicable to the loan
in question. Specifically, when a bank makes a loan, it is responsible
for ensuring that the loan is made both in a safe and sound manner and
in accordance with applicable laws and regulations, even if the loan is
made in the context of a third-party partnership and even if the bank's
partner is the customer-facing entity.\27\ As the bank's prudential
regulator, the OCC directly supervises these lending activities.\28\
The OCC also ensures that the bank has instituted appropriate
safeguards to manage the risks associated with the partnership.
---------------------------------------------------------------------------
\27\ As the OCC has previously stated, ``[a] bank's use of third
parties does not diminish the responsibility of its board of
directors and senior management to ensure that the activity is
performed in a safe and sound manner and in compliance with
applicable laws.'' OCC Bulletin 2013-29. But see supra note 21.
\28\ Depending on the structure of the bank and the activities
it conducts, other regulators may have oversight roles as well. For
example, the Consumer Financial Protection Bureau has exclusive
supervisory authority and primary enforcement authority for Federal
consumer financial laws for banks that are insured depository
institutions and have assets greater than $10 billion. See 12 U.S.C.
5515. The OCC generally has exclusive supervisory and enforcement
authority for banks with assets of $10 billion or less. See 12
U.S.C. 5516, 5581(c)(1)(B).
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While the OCC's prudential oversight of bank lending is
multifaceted, it includes ensuring that the bank has prudent
underwriting standards and loan documentation policies and procedures.
In this regard, the OCC expects all banks to establish and maintain
prudent credit underwriting practices that: (1) Are commensurate with
the types of loans the bank will make and consider the terms and
conditions under which they will be made; (2) consider the nature of
the markets in which the loans will be made; (3) provide for
consideration, prior to credit commitment, of the
[[Page 44226]]
borrower's overall financial condition and resources, the financial
responsibility of any guarantor, the nature and value of any underlying
collateral, and the borrower's character and willingness to repay as
agreed; (4) establish a system of independent, ongoing credit review
and appropriate communication to management and to the board of
directors; (5) take adequate account of concentration of credit risk;
and (6) are appropriate to the size of the institution and the nature
and scope of its activities.\29\ Moreover, banks are also expected to
have loan documentation practices that: (1) Enable the institution to
make an informed lending decision and assess risk, as necessary, on an
ongoing basis; (2) identify the purpose of a loan and the source of
repayment, and assess the ability of the borrower to repay the
indebtedness in a timely manner; (3) ensure that any claim against a
borrower is legally enforceable; (4) demonstrate appropriate
administration and monitoring of a loan; and (5) take account of the
size and complexity of a loan.\30\ A bank should also have appropriate
internal controls and information systems to assess and manage the
risks associated with its lending activities, including monitoring
adherence to established policies, as well as internal audit
systems.\31\
---------------------------------------------------------------------------
\29\ 12 CFR part 30, appendix A, Sec. II.D; see 12 CFR part 34,
appendix A to subpart D.
\30\ 12 CFR part 30, appendix A, Sec. II.C.
\31\ Id. at Sec. Sec. II.A and II.B.
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In addition, a bank's lending must be done in compliance with other
applicable laws and regulations, including Federal consumer protection
laws. For example, section 5 of the Federal Trade Commission Act (FTC
Act) provides that ``unfair or deceptive acts or practices in or
affecting commerce'' are unlawful.\32\ The Dodd-Frank Wall Street
Reform and Consumer Protection Act also prohibits unfair, deceptive, or
``abusive'' acts or practices.\33\ The OCC recently issued a new
booklet of the Comptroller's Handbook to provide guidance to examiners
about the risks of banks and third parties engaging in lending,
marketing, or other practices that may constitute unfair or deceptive
acts or practices or unfair, deceptive, or abusive acts or
practices.\34\ The OCC has taken a number of public enforcement actions
against banks for violating section 5 of the FTC Act, including for
failure to: (1) Provide sufficient information to allow consumers to
understand the terms of the product or service being offered; (2)
adequately disclose when significant fees or similar material
prerequisites are imposed in order to obtain the particular product or
service being offered; and (3) adequately disclose material limitations
affecting the product or service being offered.\35\ The agency will
continue to exercise its enforcement authority to address unlawful
actions.
---------------------------------------------------------------------------
\32\ 15 U.S.C. 45(a)(1), 45(n). OCC regulations regarding non-
real estate and real estate lending, as well as the OCC's
enforceable ``Guidelines Establishing Standards for Residential
Mortgage Lending Practices,'' expressly reference the FTC Act
standards. See 12 CFR 7.4008(c), 34.3(c), part 30, appendix C.
Further, OCC guidance directly addresses unfair or deceptive acts or
practices with respect to banks. See OCC Advisory Letter 2002-3,
``Guidance on Unfair or Deceptive Acts or Practices'' (Mar. 22,
2002); OCC Advisory Letter 2003-2, ``Guidelines for National Banks
to Guard Against Predatory and Abusive Lending Practices'' (Feb. 21,
2003); OCC Advisory Letter 2003-3, ``Avoiding Predatory and Abusive
Lending Practices in Brokered and Purchased Loans'' (Feb. 21, 2003);
and OCC Bulletin 2014-37, ``Risk Management Guidance: Consumer Debt
Sales'' (Aug. 4, 2014).
\33\ Public Law 111-203, tit. X, sections 1031 and 1036, 124
Stat. 2005, 2010 (codified at 12 U.S.C. 5531 and 5536).
\34\ Office of the Comptroller of the Currency, Comptroller's
Handbook, ``Consumer Compliance, Unfair or Deceptive Acts or
Practices and Unfair, Deceptive, or Abusive Acts or Practices''
(June 2020).
\35\ Recent OCC enforcement actions can be found on the OCC's
website at https://www.occ.gov/topics/laws-and-regulations/enforcement-actions/index-enforcement-actions.html.
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Banks also are subject to Federal fair lending laws and may not
engage in unlawful discrimination, such as ``steering'' a borrower to a
higher cost loan on the basis of the borrower's race, national origin,
age, or gender. If a bank engages in any unlawful discriminatory
practices, the OCC will take appropriate action under the Federal fair
lending laws.\36\ Further, under the Community Reinvestment Act (CRA)
regulations, evidence of discriminatory or other illegal credit
practices adversely affect a bank's CRA performance rating.\37\
---------------------------------------------------------------------------
\36\ See 15 U.S.C. 1691; 42 U.S.C. 3601 et seq. As noted above,
supra note 28, other regulators may have oversight roles as well and
can take appropriate enforcement action to address unlawful action
within their jurisdiction.
\37\ See 12 CFR 25.28(c); 12 CFR 25.17 (effective Oct. 1, 2020).
---------------------------------------------------------------------------
The OCC has also taken significant steps to eliminate predatory,
unfair, or deceptive practices in the Federal banking system,
recognizing that ``[s]uch practices are inconsistent with important
national objectives, including the goals of fair access to credit,
community development, and stable homeownership by the broadest
spectrum of America.'' \38\ To address these concerns, the OCC requires
banks engaged in lending to take into account the borrower's ability to
repay the loan according to its terms.\39\ In the OCC's experience, ``a
departure from fundamental principles of loan underwriting generally
forms the basis of abusive lending: lending without a determination
that a borrower can reasonably be expected to repay the loan from
resources other than the collateral securing the loan, and relying
instead on the foreclosure value of the borrower's collateral to
recover principal, interest, and fees.'' \40\
---------------------------------------------------------------------------
\38\ OCC Advisory Letter 2003-2.
\39\ See 12 CFR 7.4008(b), 34.3(b), part 30, appendix A,
Sec. Sec. II.C.2 and II.D.3.
\40\ OCC Advisory Letter 2003-2.
---------------------------------------------------------------------------
Additionally, the OCC has cautioned banks about lending activities
that may be considered predatory, unfair, or deceptive, noting that
many such lending practices are unlawful under existing Federal laws
and regulations or otherwise present significant safety, soundness, or
other risks. These practices include those that target prospective
borrowers who cannot afford credit on the terms being offered, provide
inadequate disclosures of the true costs and risks of transactions,
involve loans with high fees and frequent renewals, or constitute loan
``flipping'' (frequent re-financings that result in little or no
economic benefit to the borrower that are undertaken with the primary
or sole objective of generating additional fees).\41\ Policies and
procedures should also be designed to ensure clear and transparent
disclosure of the terms of the loan, including relative costs, risks,
and benefits of their loan transaction, which helps to mitigate the
risk that a transaction could be unfair or deceptive.
---------------------------------------------------------------------------
\41\ See OCC Advisory Letter 2000-7, ``Abusive Lending
Practices'' (July 25, 2000); OCC Advisory Letter 2000-10, ``Payday
Lending'' (Nov. 27, 2000); OCC Advisory Letter 2003-2; OCC Advisory
Letter 2003-3; and OCC Bulletin 2014-37.
---------------------------------------------------------------------------
The OCC believes that the applicable statutes and regulations,
enforceable guidelines, and other issuances include appropriate
safeguards with respect to a bank's use of its lending power and are
also appropriate to consider in the context of a lending partnership.
While partnerships provide benefits, including expanding access to
affordable credit, they may also pose legitimate safety and soundness
concerns and raise questions regarding banks' involvement in activities
that may not be consistent with applicable laws and regulations, if
they are not appropriately managed. In this regard, the OCC believes it
is appropriate to re-emphasize that ``any lending practices that take
unfair advantage of borrowers, or that have a detrimental impact on
communities . . . conflict with the high standards
[[Page 44227]]
expected of [banks].'' \42\ To ensure that banks operate consistent
with these principles, the OCC evaluates the following as part of its
routine supervision of a bank's lending relationships with third
parties:
---------------------------------------------------------------------------
\42\ OCC Advisory Letter 2003-2.
---------------------------------------------------------------------------
Does the bank appropriately manage the risks associated
with its third-party relationships, including through policies and
procedures that ensure adherence to the bank's risk appetite and
tolerances and by appropriate ongoing monitoring of the third party's
relevant activities? \43\
---------------------------------------------------------------------------
\43\ See, e.g., OCC Bulletin 2013-29; OCC Bulletin 2020-10.
---------------------------------------------------------------------------
Are the underwriting criteria for loans made by the bank
as part of third-party relationships consistent with criteria the bank
would use for loans made without a third party? \44\
---------------------------------------------------------------------------
\44\ See, e.g., 12 CFR part 30, appendix A, Sec. II; OCC
Bulletin 2013-29; OCC Bulletin 2020-10.
---------------------------------------------------------------------------
[cir] If the underwriting criteria differs, are these underwriting
criteria consistent with applicable law, including 12 CFR part 30,
Appendix A, and with safety and soundness?
Are the terms and structures of the bank's loan
appropriate for the borrower? Are the lending practices appropriate?
\45\
---------------------------------------------------------------------------
\45\ See, e.g., OCC Advisory Letter 2000-7; OCC Advisory Letter
2000-10; OCC Advisory Letter 2003-2; OCC Advisory Letter 2003-3.
---------------------------------------------------------------------------
[cir] Are there characteristics, structures, or practices that make
it difficult or impossible for a borrower to reduce or repay its
indebtedness (e.g., repeated capitalization of interest; extended
negative amortization; or a single payment or balloon payment)?
[cir] Are borrowers forced into costly rollovers, renewals, or
refinancing transactions that are likely to result in debt traps or
ongoing cycles of debt?
Are the bank's overall returns on the loans reasonably
related to the bank's risks and costs of the loans (e.g., the total
credit costs on short term loans, such as 12- to 36- month loans, are
not substantial in relation to, or do not exceed, the principal amount
of the loan)? \46\
---------------------------------------------------------------------------
\46\ See, e.g., Interagency Lending Principles for Offering
Responsible Small-Dollar Loans (May 2020); OCC Advisory Letter 2000-
7.
---------------------------------------------------------------------------
Do disclosures provide sufficient information to draw the
borrower's attention to key terms and to enable the borrower to
determine whether the loan meets their particular financial
circumstances and needs? For example, would a borrower who is not
financially sophisticated or who is otherwise vulnerable to abusive
practices understand the terms of the loan, including the loan's
relative costs, risks, and benefits? \47\
---------------------------------------------------------------------------
\47\ See, e.g., OCC Advisory Letter 2003-2; OCC Advisory Letter
2000-10.
---------------------------------------------------------------------------
In addition to the consequences described above, the proposal would
operate together with the OCC's recently finalized Madden-fix rule to
provide greater clarity to banks regarding their lending
activities.\48\ Once it is determined that a loan has, in fact, been
made by a bank under the clear standards set out in this proposal, the
applicable Federal legal framework (1) determines the interest
permitted on the loan, pursuant to 12 U.S.C. 85 and 1463(g), and (2)
permits the loan to be subsequently sold, assigned, or otherwise
transferred without affecting the interest term, pursuant to the
Madden-fix rule. This clarity would enable banks to more effectively
and efficiently work with other market participants to manage their
risks and leverage their balance sheets to meet customers' needs for
affordable credit.
---------------------------------------------------------------------------
\48\ See supra note 17.
---------------------------------------------------------------------------
IV. 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 notice of proposed rulemaking and determined that it would
not introduce any new or revise any existing collection of information
pursuant to the PRA. Therefore, no submission will be made to OMB for
review.
Regulatory Flexibility Act. The Regulatory Flexibility Act (RFA), 5
U.S.C. 601 et seq., requires an agency, in connection with a proposed
rule, to prepare an Initial 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 of less) or
to certify that the proposed rule would not have a significant economic
impact on a substantial number of small entities. The OCC currently
supervises approximately 745 small entities. The OCC expects that all
of these small entities would be impacted by the rule.
While this proposal could affect how banks structure their current
or future third-party relationships, the OCC does not expect that these
adjustments would involve an extraordinary demand on a bank's human
resources. Banks already have systems, policies, and procedures in
place for issuing loans when third parties are involved, and it takes
significantly less time to amend existing policies than to create them.
In addition, any costs would likely be absorbed as ongoing
administrative expenses. Based on this, the OCC believes the costs
associated with any administrative changes in bank lending policies and
procedures would be de minimis. Furthermore, legal certainty about
whether a loan is made by a bank may encourage some banks to engage in
new lending relationships or to expand their existing lending
relationships. However, as noted, we do not expect the accompanying
costs to be substantial. Therefore, the OCC anticipates that costs, if
any, will be de minimis and certifies that this rule, if adopted, would
not have a significant economic impact on a substantial number of small
entities. Accordingly, a Regulatory Flexibility Analysis is not
required.
Unfunded Mandates Reform Act. Consistent with the Unfunded Mandates
Reform Act of 1995 (UMRA), 2 U.S.C. 1532, the OCC considers whether the
proposed 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 adjusted for inflation
(currently $157 million) in any one year. The proposed rule does not
impose new mandates. Therefore, the OCC concludes that implementation
of the proposed rule would not result in an expenditure of $157 million
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
[[Page 44228]]
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.
Although the proposed rule does not impose additional reporting,
disclosures, or other new requirements on insured depository
institutions, the OCC invites comments that will inform its
consideration of the administrative burdens and the benefits of its
proposal, as well as the effective date of the final rule.
List of Subjects in 12 CFR Part 7
Computer technology, Credit, Derivatives, Federal savings
associations, Insurance, Investments, Metals, National banks, Reporting
and recordkeeping requirements, Securities, Security bonds.
Office of the Comptroller of the Currency
For the reasons set out in the preamble, the OCC proposes to amend
12 CFR part 7 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).
0
2. Add Sec. 7.1031 to read as follows:
Sec. 7.1031 National banks and Federal savings associations as
lenders.
For purposes of sections 5136 and 5197 of the Revised Statutes (12
U.S.C. 24 and 12 U.S.C. 85), section 24 of the Federal Reserve Act (12
U.S.C. 371), and sections 4(g) and 5(c) of the Home Owners' Loan Act
(12 U.S.C. 1463(g) and 12 U.S.C. 1464(c)), a national bank or Federal
savings association makes a loan when the national bank or Federal
savings association, as of the date of origination:
(a) Is named as the lender in the loan agreement; or
(b) Funds the loan.
Brian P. Brooks,
Acting Comptroller of the Currency.
[FR Doc. 2020-15997 Filed 7-21-20; 8:45 am]
BILLING CODE 4810-33-P
