Congress Prepares To Invalidate OCC’s True Lender Rule – Consumer Protection

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


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

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

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

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

Visit us at

Mayer Brown is a global legal services provider
comprising legal practices that are separate entities (the
“Mayer Brown Practices”). The Mayer Brown Practices are:
Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited
liability partnerships established in Illinois USA; Mayer Brown
International LLP, a limited liability partnership incorporated in
England and Wales (authorized and regulated by the Solicitors
Regulation Authority and registered in England and Wales number OC
303359); Mayer Brown, a SELAS established in France; Mayer Brown
JSM, a Hong Kong partnership and its associated entities in Asia;
and Tauil & Chequer Advogados, a Brazilian law partnership with
which Mayer Brown is associated. “Mayer Brown” and the
Mayer Brown logo are the trademarks of the Mayer Brown Practices in
their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights

Mayer Brown article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein.

Comments are closed.