OCC Issues Long-Awaited Final Rule Clarifying ‘Valid When Made’ Principle

The OCC issued a long-awaited final rule today affirming that permissible interest on a loan made by a national bank or federal thrift remains valid when the loan is transferred or sold, codifying the “valid when made” principle for nationally chartered banks. Under the final rule, which was adopted as proposed, federal regulations would provide that interest on permissible loans “shall not be affected by the sale, assignment, or other transfer of the loan.”

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.

“The rule supports the orderly function of markets and promotes the availability of credit by answering the legal uncertainty created by the Madden decision,” said Acting Comptroller of the Currency Brian Brooks. “Such certainty allows secondary markets to work efficiently and to serve their essential role in the business of banking and helping banks access liquidity and alternative funding, improve financial performance ratios, and meet customer needs.”

The FDIC has also issued a similar proposal, which ABA also supported, ensuring that “valid when made” is codified for both national and state-chartered banks.