Proposal would define ‘true lender’ to clarify relationships with third parties

A bank that makes a loan would be determined a “true lender” under the provisions of a rule proposed Monday by the national bank regulator.

The Office of the Comptroller of the Currency (OCC) said the determination would be made in the context of a partnership between a bank (or a federal savings association) and a third party.

According to the OCC, the proposed rule would resolve uncertainty by specifying that a bank is a “true lender” in making a loan under one of two circumstances: when the bank is named as the lender in the loan agreement, or the bank funds the loan.

In explaining the background for the proposal, the OCC said banks’ relationships with third parties have been subject to increasing uncertainty about the legal framework that applies to 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,” the agency said.

The agency said its proposal is designed as a “clear test” to determine when a bank makes a loan.

“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,” the agency said. “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,” the agency added. “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.”

Comments are due Sept. 3, the agency said.

Office of the Comptroller of the Currency Issues Proposed True Lender Rule

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