Motivating this regulatory action was the 2015 decision in the Madden case [786 F. 3d 246], handed down by the Second Circuit Court of Appeals, holding that the legally permissible interest rate charged on a loan originated by a national bank becomes impermissible when the loan is purchased by a lender subject to the usury law of a state where that rate exceeds the legal interest rate ceiling. Consequently, uncertainty has shrouded the longstanding principle that a loan that is legal when made is legal always.

In taking this action the OCC stated that leaving this legal uncertainty unresolved “may disrupt banks’ ability to serve consumers, businesses, and the broader economy efficiently and effectively, particularly in times of economic stress.” Moreover, the OCC believes that the new regulations “may facilitate responsible lending by banks, including in circumstances when access to credit is especially critical.”

While the Madden case ruled only on the transfer of loans by national banks, the OCC has seen fit to clarify that the legal-when-made principle applies equally to federal thrifts. Accordingly, except for appropriate references to the respective federal enabling statutes, the operative language of both new regulations is identical. The regulations become effective August 3, 2020.

Client Alert 2020-360