OCC’s Noreika Endorses ABA-Backed ‘Madden Fix’

Acting Comptroller of the Currency Keith Noreika today backed a legislative approach that would clarify which laws apply to interest rates on loans if the loans are resold. The so-called Madden fix would clarify that legally made bank loans may be resold and collected on by nonbank entities at the same interest rate. It would re-establish a legal precedent that had been in place prior to the 2015 Madden v. Midland Funding case, which involved a lawsuit brought by a borrower whose loan was sold by a national bank to a debt buying company.

“This proposal reduces uncertainty by reestablishing well-settled law and would create a uniform standard eliminating the differences in treatment of loans made in different judicial circuits,” Noreika said. “The proposal supports economic opportunity by helping banks, savings associations, and credit unions to sell their loans, thereby promoting liquid markets.”

Sen. Mark Warner (D-Va.) and Rep. Patrick McHenry (R-N.C.) have introduced ABA-supported bills in each house of Congress that would address the issue. In Madden, a judge in the Second Circuit Court of Appeals found that exporting the originated interest rate violated state usury law in the state where the borrower lived, because the loan buyer was neither a national bank nor acting on behalf of the bank. The court concluded that the preemption in the National Bank Act, which allows national banks and their affiliates to charge the lawful interest rate of their headquarters state without regard to usury laws in a consumer’s home state, did not apply to the debt buying company.

In his speech to an online lending group, Noreika also discussed the OCC’s authority to issue limited-purpose national bank charters, which is currently being challenged in court. “We have filed our responses in both cases and will continue to defend our authority vigorously,” he said. “We have not, however, decided whether we will exercise that specific authority to issue special purpose national bank charters to nondepository fintech companies.”