“Predatory lending has no place in the federal banking system,” the head of the national banking regulator said Wednesday in response to a federal court ruling upholding his agency’s rule on permissible interest on transferred loans.
In a statement, Acting Comptroller of the Currency Michael J. Hsu said the Wednesday decision affirmed the validity of the Office of the Comptroller of the Currency’s (OCC) rule. He said the rule provides that when a national bank or state or federal savings association sells, assigns, or otherwise transfers a loan, the interest permissible before the transfer continues to be permissible after the transfer.
“This legal certainty should be used to the benefit of consumers and not be abused,” Hsu said. “I want to reiterate that predatory lending has no place in the federal banking system. The OCC is committed to strong supervision that expands financial inclusion and ensures banks are not used as a vehicle for ‘rent-a-charter’ arrangements.”
In 2020, the OCC and the Federal Deposit Insurance Corp. (FDIC) adopted rules meant to clarify permissible interest on transferred loans in the face of an earlier court decision, the 2015 “Madden” decision. According to the OCC, the rules were meant to clear up a legal uncertainty caused by the 2015 court decision regarding what the OCC termed as the “centuries-old doctrine of valid when made.” The final rule, the agency said in 2020 “supports the orderly function of markets and promotes the availability of credit by answering the legal uncertainty created by the ‘Madden’ decision.”
According to the OCC rule’s summary, it clarifies that when a bank transfers a loan, the interest permissible before the transfer continues to be permissible after the transfer.
The decision was issued Tuesday by the U.S. District Court for the Northern District of California in a case that was brought by three states (California, Illinois, and New York). The states argued that the agencies rules enabled predatory lending by making it easier for lenders to evade interest-rate caps by their states and others.
However, U.S. District Judge Jeffrey White found the agencies have the authority to issue the rules and that it did not do so arbitrarily and capriciously. He rejected the argument that the rule preempts any specific state or consumer law.