FDIC Finalizes Rule Codifying ‘Valid When Made’ Principle

The FDIC today finalized an ABA-supported rule codifying 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 finalized a similar rule earlier this year—also with ABA’s support—ensuring that the “valid when made” principle is codified for both national and state-chartered banks.

“The FDIC’s Federal Interest Rate Authority rule will restore the efficiency and effectiveness of primary and secondary loan markets, protecting the ability of state banks and loan purchasers to diversify their holdings while facilitating loan origination,” commented American Bankers Association President and CEO Rob Nichols.

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.