OCC Finalizes ‘True Lender’ Rule

The OCC today issued a long-awaited final rule 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. Under the final rule, 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, 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 final rule further states that “if, as of the date of origination, one bank is named as the lender of the loan agreement for a loan and another bank funds that loan, the bank that is named as the lender in the loan agreement makes the loan.”

In response to concerns raised by the American Bankers Association, the OCC clarified in the preamble to the final rule that the bank would not be considered the true lender in certain traditional lending or finance arrangements such as mortgage warehouse lending, indirect automobile finance, loan syndication and other structured finance. The OCC also clarified that the rule “does not affect the applicability” of the Home Mortgage Disclosure Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, or their implementing regulations.

The final rule will provide regulatory clarity and certainty to enable banks to engage in relationships with third parties and will take effect 60 days after publication in the Federal Register.