Office of the Comptroller of the Currency Proposes Clarification for “Valid When Made” Related to Madden v. Midland Lawsuit

The Office of the Comptroller of the Currency (OCC) is proposing to “clarify” the “valid when made” issue regarding lending. The OCC is soliciting comments now on the proposal.

To quote the OCC:

“[the proposed] rule to clarify that when a national bank or savings association sells, assigns, or otherwise transfers a loan, interest permissible prior to the transfer continues to be permissible following the transfer. This proposal will address confusion about the effect of a transfer on a loan’s valid interest rate, including confusion resulting from a recent decision from the U.S. Court of Appeals for the Second Circuit (Madden v. Midland Funding, LLC). The proposed rule would apply to all national banks and state and federal savings associations. Comments will be accepted for 60 days after publication in the Federal Register. The Federal Deposit Insurance Corporation is also issuing a proposal that would address this issue.”

To quote the proposal:

“… Despite these clear authorities, recent developments have created uncertainty about the ongoing validity of the interest term after a bank sells, assigns, or otherwise transfers a loan. After considering the principles discussed below, the OCC has concluded that when a bank sells, assigns, or otherwise transfers a loan, interest permissible prior to the transfer continues to be permissible following the transfer. This proposed rule would codify this conclusion.”

Online lending platforms are acutely aware of the issue of the valid when made issue. In the US, each state may define the maximum amount of interest that may be charged on a loan. Some states may not set any caps. If a loan moves from a high-interest state to one where the interest is set at a statutory level lower, this can, and has, caused a problem.

A good explanation of the legal odyssey is available here. The Madden v. Midland case has embroiled the entire online lending industry for years. The OCC proposal should finally put the issue at rest as it would provide that interest on a loan that is permissible shall not be affected by the sale, assignment, or “other system.”


Valid When Made nr-occ-2019-132a

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