NYDFS Urges OCC to Withdraw "True Lender" Rule Proposal

The New York State Department of Financial Services ("NYDFS") urged the OCC to withdraw a proposed rule that would clarify when a national bank or federal savings association is considered to be the "true lender in the context of a partnership between a bank and a third party, such as a marketplace lender."

The proposed rule would clarify that a national bank or federal savings association is considered to have made a loan if, on the date that the loan originated, the national bank or federal savings association (i) is named as the lender in the loan agreement or (ii) funds the loan (see previous coverage).

In a comment letter, the NYDFS expressed concern that adoption of the rule would result in the proliferation of predatory lenders who would use the rule as a loophole to circumvent state law usury caps and to "charge astronomical interest rates" to vulnerable consumers. The NYDFS also argued that the OCC failed to consider several relevant factors when establishing its criteria for a "true lender," including the identity of the party that was or will be the (i) marketer, solicitor and processor of the loan application, (ii) provider of the underwriting guidelines, (iii) servicer of the loan and (iv) bearer of the credit risk associated with the loan.

Further, the NYDFS stated that the OCC failed to take the "substantive and procedural" steps required under 12 U.S.C. 25b ("State law preemption standards for national banks and subsidiaries") and 12 U.S.C. 1465(a) ("State law preemption standards for Federal savings associations") prior to preempting state consumer protection regulations. The NYDFS declared its intention, should the OCC finalize the rule, to "take all appropriate steps necessary to protect consumers and small businesses in New York."