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

American Bankers Association today expressed support for the FDIC’s proposal to codify that permissible interest on loans made by state-chartered banks and insured branches of foreign banks remains valid when a loan is transferred or sold. The OCC proposed a similar rule in November—which ABA also supported—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.

In its comment letter, ABA urged the FDIC to continue to coordinate its work on this rulemaking with the OCC’s work on its parallel rulemaking.