OCC Issues Long-Awaited ‘True Lender’ Proposal

In a long-awaited move, the OCC today issued a proposal establishing a “clear test” to determine when a bank making a loan is considered the “true lender” in the context of a partnership between a bank and a third party. The proposal establishes a “clear test” to determining the true lender of a loan, the OCC noted. Under the proposal, a bank makes a loan if, as of the date of origination, it is named as the lender in the loan agreement or funds the loan.

A loan originated by a bank that satisfies either part of this test would retain its status as a bank-originated loan if the loan is sold, assigned, or otherwise transferred to a nonbank entity.

In cases where the bank funds the loan, the OCC noted that “if a bank funds a loan as of the date of origination, the OCC concludes that it has a predominant economic interest in the loan and, therefore, has made the loan—regardless of whether it is the named lender in the loan agreement as of the date of origination.”

The proposal is intended to provide regulatory clarity and certainty to enable banks to engage in relationships with third parties. Comments on the proposal will be due on Sept. 3.