On November 19, 2019, the Federal Deposit Insurance Corporation issued a proposed a new rule to clarify that the interest rate on a loan extended by a state-chartered bank or savings association will not be usurious upon sale, transfer or assignment of the loan if such interest rate was valid when the loan was made. The FDIC release follows the Office of the Comptroller of the Currency’s similar proposed rule issuance a day earlier applicable to national banks and federal savings associations.
In its news alert, the OCC noted that its proposed rule will address “confusion about the effect of a transfer on a loan’s valid interest rate, including confusion resulting from a recent decision from the U.S. Court of Appeals for the Second Circuit…” The FDIC release further expounded, noting that its proposal is “intended to address marketplace uncertainty in the wake of a 2015 court ruling that called into question the enforceability of interest rate terms following the sale or assignment of a loan originated by a national bank to a third-party non-bank.” That decision by the Second Circuit unsettled the previously established “valid when made” doctrine, which provides that upon sale, assignment or other transfer of a loan, the interest rate and other terms of such loan will remain permissible as long as such interest rate and other terms were valid when made. In 2016, the Supreme Court denied certiorari, leaving those selling or purchasing debt with the uncertainty that the federal regulators are now addressing through their respective proposals.
The OCC and the FDIC will accept comments for 60 days following the respective publications of each proposed rule in the Federal Register.