March 28, 2021

Congress Prepares to Invalidate OCC’s True Lender Rule


On Thursday (March 26, 2021), Senator Chris Van Hollen (D-MD) introduced a Congressional Review Act (CRA) resolution of disapproval to invalidate the Office of the Comptroller of the Currency’s (OCC) true lender rule. The resolution is co-sponsored by Senate Banking Committee Chair Sherrod Brown (D-OH) and Senators Jack Reed (D-RI), Elizabeth Warren (D-MA), Catherine Cortez-Masto (NV), Tina Smith (D-MN), and Dianne Feinstein (D-CA). Rep. Chuy Garcia (D-IL) participated in the introduction of the resolution, signaling support for the resolution by House Democrats. The Biden Administration has not yet stated its support for the resolution, though President Biden is likely to sign the resolution into law if Congress passes it.

With the statutory deadline for Congress to take up the resolution of disapproval quickly approaching in approximately mid-May, Congress will have to either pass the resolution when it returns in April from its two week recess, or effectively defer to President Biden’s future Comptroller of the Currency to determine the future of the rule. Given the Democrats’ narrow majorities in both houses of Congress, the vote on the resolution is expected to be close with possible defections on both sides of the aisle. If Congress does not pass the resolution by the statutory deadline, the new Comptroller of the Currency could still seek to repeal or modify the rule at a later date. President Biden has not yet announced a nominee for Comptroller.

If Congress passes the resolution of disapproval and President Biden signs it into law, it would effectively restore the various pre-rule, court-created standards for determining the true lender under certain bank partner programs involving national banks and federal savings banks. It would also create uncertainty about the OCC’s legal authority to issue a new rule in the future on when a national bank or federal savings association is the lender of a loan.


Last October, the OCC issued the true lender rule to clarify the legal framework around bank lending partnerships in which a national bank or federal savings association originates loans under a bank partner program. The Federal Deposit Insurance Corporation (FDIC) did not issue a similar rule addressing when a state-chartered bank under a bank partner program would be considered the “true lender” and these programs continue to operate under the varying court-created standards discussed below. Specifically, the OCC sought to provide a clear rule on when the bank or the third party would be considered to be the lender in such a transaction. The true lender rule provided that a national bank or federal savings association would be considered the lender if, “as of the date of origination: [the bank] (1) is named as the lender in the loan agreement, or (2) funds the loan.” In providing this clear legal standard, the OCC sought to facilitate lending by national banks and federal savings associations (including by making it easier for banks to free up their balance sheets for new lending) and to enhance their risk management (including by making it easier to remove longer-term assets from their balance sheets and shrink their asset-liability mismatch). To address concerns about national banks or federal savings associations entering into “rent-a-charter” schemes to allow nonbanks to avoid state consumer protection laws (especially state usury laws), the OCC specifically stated in its release that “[t]hese arrangements have absolutely no place in the federal banking system” and warned the “[i]f a bank fails to satisfy its compliance obligations, the OCC will not hesitate to use its enforcement authority.”

The true lender rule has been sharply criticized by consumer protection advocates on grounds that it undercuts state consumer protection laws by promoting rent-a-charter arrangements involving short-term, high-interest loans. In his public statement introducing the resolution of disapproval, Chair Brown argued that the true lender rule “eviscerated state consumer protection laws” by allowing unregulated nationwide payday lending. He further stated that “federal regulators needed to crackdown on abusive ‘rent-a-bank’ schemes.” Several states, including New York and California, have filed suit against the OCC seeking to invalidate the rule on grounds that the agency exceeded its authority in issuing the rule and violated the Administrative Procedures Act (APA).

The Congressional Review Act

Under the CRA, Congress can pass a resolution of disapproval to invalidate major rules by federal agencies using expedited procedures, which, most importantly, do not permit the resolution to be filibustered in the Senate. However, the resolution of disapproval must still be signed into law by the President, so the CRA has only been used when one party has a majority in both houses of Congress and holds the presidency. Under President George W. Bush, one CRA resolution of disapproval was enacted. Under President Donald Trump, 16 CRA resolutions of disapproval were enacted. No Democratic President has signed a CRA resolution of disapproval.

The CRA also imposes strict time limits for Congress to adopt a resolution of disapproval using its fast-track procedures. In particular, the Senate has 60 session days (days in which the Senate meets) to pass the resolution of disapproval using fast-track procedures (which do not permit the use of the filibuster). The 60-session days start on the later of the date that (1) Congress receives a report on the rule that the CRA requires agencies to provide before a rule can take effect, or (2) the rule is published in the Federal Register. However, if an agency submits the report on the rule to Congress and Congress adjourns before the expiration of 60 session days in the Senate or 60 legislative days in the House, then the CRA provides for a “look-back period,” which restarts the CRA time limits from the beginning of the next session. In such case, the Senate has 60 session days starting on the 15th session day of the next session to adopt the resolution of disapproval using CRA’s expedited procedures. Applying the lookback time limits to the 117th Congress, Congress has until approximately mid-May (depending on if Congress has unexpected adjournments) to use the CRA on rules issued after August 21, 2020, which is the beginning of the look-back period. The true lender rule falls in the lookback period because it was published in the Federal Register on October 30, 2020, and the House and Senate received the OCC’s report on the rule on November 5th and 10th, respectively. In contrast, the OCC’s and the FDIC’s valid-when-made (a.k.a. the Madden-fixes) rules were submitted to the Federal Register and their reports were provided to Congress before August 21, 2020, and, therefore, fall outside of the lookback period and cannot be invalided by Congress using the CRA.

Consequences of Invalidation

Any rule invalidated under the CRA is treated as if the rule had never taken effect. Accordingly, if the true lender rule is invalidated under the CRA, the law governing when a national bank or federal savings association is acting as the “true lender” would revert back to its status prior to the issuance of the rule. Under the prior standard, courts have issued divergent standards for determining whether a bank was the lender under a bank partner program. Some courts looked to whether the bank’s name was on the loan documents. Other courts have reviewed the totality of the circumstances or the performance of certain ministerial functions related to the program, while others have evaluated the economic interests of the parties in the loans being originated under the program. Banks seeking to originate loans through lending platforms or other service providers, and potential investors in loans originated under such relationships, had been left to struggle with uncertainty not only as to which party ultimately would be determined to be the true lender, but also as to the basic standards under which the relationship would be judged. Resolving this predicament and bringing clarity to the secondary market were the principle reasons that the OCC had issued the true lender rule.

In addition, a successful CRA invalidation of the true lender rule could substantially impact the OCC’s authority to address the true lender issue in the future because the CRA prohibits an agency from reissuing any rule previously invalided under the CRA in “substantially the same form.” The courts have yet to rule on the scope of the “substantially the same form” prohibition, but they almost certainly would prohibit the OCC from re-issuing the true lender in its current form or with mere cosmetic changes.

The Biden Administration and Congressional Democrats have so far refrained from using the CRA to remove Trump-era regulations likely due, in part, to concerns that agencies that issue new rules to replace the invalidated rules would face legal challenges on grounds that they violated the “substantially the same form” standard. From a practical perspective, the CRA provides a faster way to repeal a rule than having an agency go through APA notice-and-comment procedures, which often take months and can take more than a year. But if the goal is to repeal and replace a rule (as is likely the case for the Biden Administration and Congressional Democrats with respect to many Trump-era rules) rather than just repealing a rule, the “substantially the same form” standard does create a potential hurdle to replacing a rule.

In the case of the true lender rule, however, congressional opponents of the rule may be seeking to use the CRA precisely because it would make it difficult for a future Comptroller to issue a new rule on when a bank is the true lender. As noted above, the state attorneys’ general opposing the rule argue in their suit that the OCC does not have the authority to promulgate the rule. Thus, opponents of the rule may have tactically decided that using the CRA (rather than having a new Comptroller repeal the rule through APA notice-and-comment procedures) would place another obstacle in front of a subsequent rulemaking on the true lender issue by another administration. In the future, even if the OCC did issue a new true lender with modifications that the Comptroller considered to be substantial changes, the agency could still face legal challenges as parties opposed to the rule could seek to litigate the “substantially the same form” standard as a means of delaying the implementation of the rule. Such a delay could be long enough for a new Comptroller to assume office or a change in control of Congress to occur, which could then allow for the withdrawal of the new rule or its invalidation under the CRA.

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