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On October 27, 2020, the Office of the Comptroller of the Currency’s (OCC) True Lender Rule, which is codified under 12 CFR 7.1031, became final.  The rule helps clarify who is the ‘true lender’ in loan funding partnerships between OCC regulated national banks or federal savings associations and loan originators, addressing several divergent judicial tests that produced the Madden issue and a lack of predictability faced by stakeholders in loan originations.

In Madden V. Midland Funding, LLC, 786 F.3d 246 (2d Cir. 2015), the Second Circuit of the U.S. Court of Appeals determined that National Bank Act preemption standards that protect national banks and federal savings associations from the application of state laws that interfere with their banking powers under federal law did not prevent the application of state usury laws to a non-bank purchaser of a bank-originated loan.

While the OCC recently clarified that interest permissible on a loan made by a national bank or federal savings association is not affected by the subsequent sale, assignment, or other transfer of the loan, uncertainty remained regarding how to determine if a loan is, in fact, made by a bank as opposed to by its relationship partner. See 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).

The new ‘true lender’ rule provides that a bank is the ‘true lender’ when the bank, as of the date of origination is named as the lender in the loan agreement or funds the loan. Therefore, if one bank funds a loan but another bank or non-bank mortgage company is named as the lender in the loan agreement, the one named on the loan is the true lender. The rule also clarifies that as the true lender of a loan, the named originator retains the compliance obligations associated with the origination of that loan.

Mortgage warehouse lenders appear to have been spared. They often have arrangements with mortgage originators to fund the making of loans underwritten by mortgage originators.  Although the new true lender rule doesn’t specific exclude warehouse lenders in the rule’s body, the OCC’s written analysis in support of the new rule specifically excludes warehouse lenders in an example detailed by them in the rule. The lead-up to the final rule says it is not intended to make warehouse lenders in non-table funded transactions the true lender. Specifically, the analysis provides:

“Some commenters supported the rule without change, stating that the proposal provided the clarity needed to determine which entity is the true lender in a lending relationship. Other commenters supported the proposal as a general matter but suggested specific changes, including clarifying that the funding prong does not include certain lending or financing arrangements such as warehouse lending, indirect auto lending (through bank purchases of retail installment contracts (RICs)), loan syndication, and other structured finance.

These commenters are correct that the funding prong of the proposal generally does not include these types of arrangements: they do not involve a bank funding a loan at the time of origination. For example, when a bank purchases a RIC from an auto dealer, as is often the case with indirect auto lending, the bank does not “fund” the loan. When a bank provides a warehouse loan to a third party that subsequently draws on that warehouse loan to lend to other borrowers, the bank is not funding the loans to these other borrowers. In contrast, and as noted in the proposal, the bank is the true lender in a table funding arrangement when the bank funds the loan at origination.”

Given the brevity of the regulation itself, we will keep up with the final rule and any amendments thereto over time, in case we ever need to cite the excerpt above. Meanwhile, please let us know if you have any questions by contacting Milton Vescovacci directly at 305-376-6041 or mvescovacci@gunster.com.

Milton Vescovacci is a shareholder at Gunster’s Miami office and is a member of the firm’s Corporate Law practice. He is licensed to practice law in Florida, New York and New Jersey. With more than 30 years of experience in finance, Milton represents national and regional warehouse lenders of residential mortgage loans, servicing rights and advances, commercial mortgage loans and automobile loans structured as single lender or syndicated repos, credit lines, off balance sheet true participations or true sale facilities.

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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.


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Gunster, Florida’s law firm for business, provides full-service legal counsel to leading organizations and individuals from its 11 offices statewide. Established in 1925, the firm has expanded, diversified and evolved, but always with a singular focus: Florida and its clients’ stake in it. A magnet for business-savvy attorneys who embrace collaboration for the greatest advantage of clients, Gunster’s growth has not been at the expense of personalized service but because of it. The firm serves clients from its offices in Boca Raton, Fort Lauderdale, Jacksonville, Miami, Orlando, Palm Beach, Stuart, Tallahassee, Tampa, Vero Beach, and its headquarters in West Palm Beach. With over 200 attorneys and 200 committed support staff, Gunster is ranked among the National Law Journal’s list of the 500 largest law firms and has been recognized as one of the Top 100 Diverse Law Firms by Law360. More information about its practice areas, offices and insider’s view newsletters is available at www.gunster.com.

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