ABA Welcomes OCC’s Proposal to Codify ‘Valid When Made’ Principle

ABA today expressed support for the OCC’s long-awaited regulatory solution affirming that permissible interest on a loan made by a national bank or federal thrift remains valid when the loan is transferred or sold. The FDIC proposed a similar rule in December, on which ABA intends to comment, ensuring that “valid when made” is codified for both national and state-chartered banks.

The so-called “Madden fix”—which ABA has long urged—addresses a Second Circuit Court of Appeals ruling in Madden v. Midland Funding, which held that a nonbank buyer of a loan issued by a national bank could not export the originated interest rate into another state. The Supreme Court declined to take up an appeal of Madden, resulting in conflicting precedent around the country and increasing the urgency of regulatory or legislative action.

ABA explained in its letter that Madden has injected uncertainty into the primary and secondary markets for consumer and commercial credit. “When loans cannot be resold by lenders, or the ability to do so is substantially curtailed, credit availability decreases and borrowers’ costs rise,” ABA said.

ABA recommended that the OCC clarify that its proposal permits a national bank to export the interest rate on a loan it originated through a transfer to any party, including an entity that is not a national bank. ABA also urged the OCC to continue to coordinate its work on this rulemaking with the FDIC’s work on its parallel rulemaking.