ABA Supports ‘True Lender’ Clarity, Expresses Concern with Overbreadth of OCC Proposal

Chief Counsel’s Office
Attention: Comment Processing
Office of the Comptroller of the Currency
400 7th Street, SW
Suite 3E-218
Washington, DC 20219

Ladies and Gentlemen:

The American Bankers Association (ABA) appreciates the opportunity to comment on the Office of the Comptroller of the Currency’s (OCC) Notice of Proposed Rulemaking (Proposed Rule). In the Proposed Rule, the OCC seeks to clarify which entity is the “true lender” of a loan that is the product of a partnership between a bank and a nonbank entity. Specifically, the OCC proposed that a national bank or Federal savings association makes a loan when the institution, as of the date of origination, is named as the lender in the loan agreement or funds the loan.

I. Summary of Comment

ABA shares the OCC’s goal to expand access to affordable credit, particularly for unbanked and underbanked consumers. We believe that innovation in financial services holds tremendous potential to help achieve that goal. Innovation can promote financial inclusion, making it possible for institutions to extend credit to many more borrowers than before, and increase the transparency of financial products. Today, innovations are emerging from within the traditional banking sector and from nonbank technology firms. When banks and technology firms partner, they can efficiently and conveniently deliver services that customers demand, from a bank that customers trust to meet their financial needs.

However, the existing legal framework governing these partnerships is neither clear nor predictable. Consequently, it stands as an impediment to the delivery of innovative services. In June, the OCC took the first step toward clarifying the rules governing these partnerships. The OCC issued a final rule confirming that if a loan is valid when it is made, with respect to the interest rate and other terms of the loan, then the loan remains valid and enforceable when assigned to another party. That rule did not clarify the standard for determining which entity originates a loan that is the product of a bank-nonbank partnership — i.e., which entity is the “true lender” of the loan. In the absence of a clear test, courts have applied differing standards for determining which entity is the “true lender.” This uncertainty can discourage lending and reduce access to affordable credit. Uncertainty also may prevent banks from securitizing or selling their loans, which supports liquidity and enables banks to increase lending in their communities.

We support the OCC’s efforts to clarify in a regulation the factors that identify the “true lender” of a loan made through these partnerships. Creating a regulatory framework that provides certainty as to the validity of loans originated by responsible bank-fintech partnerships will have tangible benefits for borrowers seeking affordable access to credit and to market participants, which will promote economic growth. The development of an appropriate regulatory framework to govern these partnerships is an important but complex undertaking. We appreciate that the OCC has initiated a rulemaking to establish such a framework.

We are concerned, however, that the Proposed Rule’s test is overly broad. Under the Proposed Rule, if the bank is “named as the lender in the loan agreement” or “[f]unds the loan,” the bank is the true lender of the loan. Although these factors establish a bright-line test to identify the entity that is the true lender, the proposed tests may inadvertently and detrimentally sweep in other traditional lending or finance arrangements such as mortgage warehouse lending, indirect automobile finance, loan syndication, and other structured finance. It is critical that the OCC identify precisely those financing arrangements to which the rule applies and the regulatory regimes for which the identification of a “true lender” under the rule is applicable.

Download the comment letter to read the full text.