In an article published today in "BankThink," American Banker’s "platform for informed opinion about the ideas, trends, and events reshaping financial services," Alan S. Kaplinsky, Practice Leader of Ballard Spahr’s Consumer Financial Services Group, urges the Office of the Comptroller of the Currency (OCC) to issue a rule to eliminate the disruption in the lending markets caused by the Second Circuit’s 2016 decision in Madden v. Midland Funding, LLC and the U.S. Supreme Court’s denial of certiorari.
In Madden, the Second Circuit ruled that a company that purchases loans from a national bank could not charge the same rate of interest on the loan that the National Bank Act (NBA) allows the national bank to charge. As a result, the decision has caused considerable uncertainty and risk for many types of bank lending programs, including "bank model" marketplace lending where national banks originate loans and then transfer them to nonbank third parties.
The article was triggered by the response of Comptroller of the Currency Thomas Curry to a question asked by Mr. Kaplinsky at the LendIt USA conference in New York City on March 6, 2017. In Madden, the OCC submitted an amicus brief in the Supreme Court asserting that the Second Circuit's decision was flat-out wrong. Mr. Kaplinsky asked Comptroller Curry whether the OCC would issue an interpretive opinion consistent with its amicus brief regarding the right of a buyer of a loan from a national bank to charge the same interest rate the bank can charge under Section 85 of the NBA. Comptroller Curry indicated that the OCC would not because the issue continued to be litigated.
As Mr. Kaplinsky demonstrates in his article, there is clear OCC and U.S. Supreme Court precedent for the OCC to issue an interpretive opinion or regulation interpreting Section 85 to address an issue that is being litigated and the Supreme Court has indicated that it can properly do so. As he also demonstrates, the need for an OCC rule is not eliminated by the OCC’s proposal to create a national bank charter for financial technology companies.
Since Comptroller Curry's term expires in April 2017, it is hoped his successor will agree that an OCC rule would be helpful in ending the turmoil created by Madden. To expedite the rulemaking process, Comptroller Curry should propose a rule before he leaves office.
Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance.