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OCC rule provides loan transferees with protection from usury laws

By a rule it adopted on May 29, 2020, the Office of the Comptroller of the Currency (“OCC”) attempts to resolve a national dispute about the legality of interest rates on loans after the loans are sold by a national bank or a federal savings association. The new rule provides simply, “Interest on a loan that is permissible under [federal law] shall not be affected by the sale, assignment, or other transfer of the loan.” The rule is an effort to reverse the effect of the Second Circuit’s 2015 ruling in Madden v. Midland Funding, LLC. There, the court held that entities other than national banks are not entitled to protection under the National Bank Act from state‐law usury claims merely because they are assignees of a national bank. The Madden case put a chill on non-banks’ willingness to buy some loans and thereby put a chill on banks’ origination of loans that might be sold to non-banks.

Read the Client Alert here.

Category: Commercial Finance, Financial Services