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On Tuesday, February 8, 2022, the United States District Court for the Northern District of California issued two separate orders that upheld the OCC and FDIC “current validity” rules.
In 2020, the OCC and FDIC issued separate rules addressing, among other things, uncertainty in secondary markets following the decision of the Madden vs. Midland Funding, LLC, 786 F.3d 246 (2d Cir. 2015) which established that usury claims against non-bank assignees were not preempted by the National Banking Act of 1864 (NBA). The OCC has promulgated a rule titled “Interest allowed on loans sold, assigned or otherwise transferredwhich is codified under 12 CFR § 160.110(d) and provided that the interest permitted on loans made by savings associations shall not be affected by the sale, assignment or other transfer of the loan. In addition, the FDIC has promulgated its own ” ” rule titled “Interest Rate Authority” under 12 CFR § 331.4(e) which clarifies that the interest rate legally assessed by an original depository institution is not affected by the sale , assignment or other transfer of the loan or a change in state law.
As expected, a small number of states have launched a legal challenge tied to political concerns about these rules that they say could enable “charter rental” programs that seek to escape the limits of the usury of the State.
In a major victory for the OCC and the FDIC, U.S. District Court Judge Joseph White issued two separate orders that granted summary judgment in favor of the agencies in the state lawsuits.
In both cases, the plaintiff says the agencies violated the Administrative Procedures Act when they enacted their respective rules.
In its order granting the FDIC’s counterclaim for summary judgment, the Court found that the FDIC did not exceed its statutory authority when it enacted 12 CFR § 331.4(e). The Court turned to a Chevron analysis and concluded that the FDIC rule was not unreasonable or arbitrary and capricious and that the rule is consistent with the principle that “the assignee puts himself in the place of the assignor.”
Similarly, in its order granting the OCC’s counterclaim for interim relief, while acknowledging that the “genuine lender” rule also enacted by the OCC in 2020 had been struck down by Congress under the Congressional review, the Court did not find this decision relevant. to rule valid when done. The Court also found that the OCC did not exceed its statutory authority when it enacted 12 CFR § 160.110(d) dealing with allowable interest on loans that are sold, assigned, or transferred. The Court found that the OCC did not violate procedural legal requirements set forth in the NBA when enacting the rule and also found that the rule did not violate the 2nd Circuit’s earlier ruling. in Madden vs. Midland Funding, LLC in 2015, because the procedural claims presented before the Court were separate and distinct from what the 2nd Circuit presented within Madden. The Court then turned to a Chevron analysis and found that the OCC rule was not unreasonable or arbitrary and capricious and cited the OCC’s reasoning that the rule was intended to resolve uncertainty after the crazy decision.
While we expect appeals to be imminent, these rulings reinforce the legitimate nature of loans validly issued by depository institutions and remove any unnecessary uncertainty as to whether these loans remain enforceable after they are sold by the originating depository institution. .
Originally published February 11, 2022
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