SACRAMENTO, Calif.—A California federal court has upheld the Office of the Comptroller of the Currency’s (OCC) 2020 rule clarifying that the interest rate on a loan made by a bank will still be valid after it’s sold to a nonbank, also referred to as the “valid-when-made” rule.
The rule was designed to address uncertainty from the 2015 Madden v. Midland Funding case in which the U.S. Circuit Court of Appeals for the Second Circuit ruled that debt collectors as well as other nonbanks that purchased loans from national banks cannot take advantage of a national bank’s ability to export rates and are subject to state usury laws limiting high interest rates, CUNA explained in its review of the ruling.
California, Illinois, and New York challenged the final rule in court saying it violated the Administrative Procedure Act.
Of note, according to CUNA, is that some consumer groups opposed the rule, arguing that it could draw in predatory lending by allowing payday lenders to avoid state interest rate caps. Online lenders, however, said they welcomed the regulation.
Not ‘Arbitrary’
The judge overseeing the case held that the final rule “is neither arbitrary nor capricious.”
Acting Comptroller Michael Hsu also welcomed the ruling saying that “this legal certainty should be used to the benefit of consumers and not be abused.”
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