Members of Congress Introduce Joint CRA Resolution to Reverse OCC’s Real Lender Rule | Morgan Lewis – All Things FinReg


Senator Chris Van Hollen (D-MD) introduced a Congressional Review Act (CRA) disapproval resolution March 26 which would invalidate the Office of the Comptroller of the Currency (OCC) ‘s final real lender rule. The resolution is co-sponsored by Senate Banking Committee Chair Sherrod Brown (D-OH) and Senators Jack Reed (D-RI), Elizabeth Warren (D-MA), Catherine Cortez-Masto (NV), Tina Smith (D -MN) and Dianne Feinstein (D-CA). Representative Chuy Garcia (D-IL), who sits on the House Financial Services Committee, participated in the presentation of the resolution, which seems to indicate House Democrats’ support for the resolution.

According to Congress’ current legislative timetable, the statutory deadline for Congress to act on the disapproval resolution would fall to approximately mid-May. While the White House has yet to announce its position on the resolution, support from senior Senate Banking Committee officials suggests that President Joseph Biden may be likely to sign the resolution. If Congress does not pass the resolution within the statutory deadline, the new (and not yet announced) Comptroller of the Currency could still seek to repeal or change the rule in the future through the administrative process.

CRA resolutions are usually subject to expedited review rules in the Senate, meaning they only require a simple majority vote in the Senate to move forward because CRA disapproval resolutions are specially privileged joint resolutions not subject to systematic obstruction or other normal blocking procedures in the Senate. However, unless at least one Republican senator joins the Democratic majority, a unanimous affirmative vote of Democratic senators will be required (assuming Vice President Kamala Harris is the deciding vote in favor of the ARC). At this point, the other Democratic senators have not indicated how they would vote.


As we have Previously reported, the OCC issued a final rule in October 2020 that determines when a national bank or federal savings association (bank) grants a loan and is the “true lender” in the context of a partnership between a bank and a bank. third party, such as a market lender. The final rule largely adopts a clear standard for determining when a bank grants a loan. Concretely, a bank grants a loan when, on the creation date, it is designated as a lender in the loan agreement or when it finances the loan. This final rule came into effect on December 29, 2020.


While it remains to be seen how strong the disapproval resolution will be, the aggressive stance taken by the Democratic leadership of the Senate Banking Committee in their public statements and the strategic priority of this proposed change over many other rules. issued by the OCC, Consumer Financial Protection Bureau and Federal Deposit Insurance Corporation — suggests a very real possibility that the resolution will pass.

Any rule invalidated under the CRA is treated as if the rule never took effect. Thus, an invalidation by the CRA of the real lender rule would reduce the law governing when a bank acts as a “real lender” to the various pre-rule standards created by the courts, many of which were divergent and sometimes inconsistent. In some cases, the courts have concluded that the form of the transaction alone solves this problem. According to this analysis, the lender is the entity named in the loan agreement. In other cases, courts have applied factual balancing tests, in which they have taken into account a multitude of factors, without any determining factor or predictable and clear standard. Still other courts have applied the “predominant economic interest” test in conducting this analysis, but may not have considered all of the same factors or given each factor the same weight.

In jurisdictions where the courts have applied balancing tests – or where there is no case law – it can be difficult to know which legal framework defines the parameters of usury, fees and license to date. granting of the loan. For example, federal law sets the interest that a bank can charge on any loan it makes and allows the bank to export that rate from the state in which it is located to borrowers in other states. Although the OCC clarified last year that the eligibility of interest charged on a loan made by a bank is not affected by the sale, assignment or other subsequent transfer of the loan (which we Previously reported), invalidating the OCC’s true lender rule would mean that there is no uniform standard for determining whether a loan is, in fact, made by a bank rather than its non-bank partner.

A successful invalidation of the real lender rule by the CRA could have a significant impact on the power of the OCC to deal with the real lender problem in the future, as the CRA prohibits an agency from reissuing any rule previously. invalidated under the CRA in “substantially the same form”. While the courts have yet to rule on the scope of the “essentially the same form” ban, the standard would at the very least prohibit the OCC from reissuing the true lender rule in the same form or with simple cosmetic modifications.

The CRA provides a faster way to repeal a rule than to require the agency to use the notice and comment procedures of the Administrative Procedures Act (APA). However, there are drawbacks – the “essentially the same form” standard limits the agency’s ability to override the rule and could lead to legal challenges if a new real lenders rule is issued with insufficiently substantial changes.

We will provide additional updates if there are further developments. In the meantime, banks, FinTech companies and non-bank lenders and service providers operating under a banking partnership model should continue to structure their programs in a manner consistent with applicable case law in the relevant jurisdictions. jurisdictions where loans are made, and non-bank lenders should remain aware of state law requirements, including loan brokerage and debt collector license requirements.

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