On June 30, 2021, President Biden signed a Joint Congress Resolution under the Congressional Review Act (“CRA”) to discourage the OCC’s True Creditor Rule. As a result, the True Creditor Rule is canceled.
The true creditor rule was published in Federal register October 30, 2020. According to the OCC, the Rule is intended to clear up market confusion that arises when a national bank partners with a non-bank lender, such as a marketplace lender.one Determining which entity provides the loan (or is the “true lender”) determines which laws apply to the loans. The true creditor rule, provided that the national bank is the true creditor, if, on the date of issue, (1) the national bank is listed as the creditor in the loan agreement for the loan and another bank finances the loan, or (2) the national bank finances the loan itself.2
As Cadwalader previously reported,3 The Congressional Review Act gives Congress expedited procedures for reviewing agency rulemaking. However, Congress is empowered to make disapproval decisions that, when signed by the president, prevent an agency rule from either going into effect or continuing. In fact, when the president signs a joint decree, it is as if the rule has not entered into force.four In addition, a repealed rule “cannot be reissued in substantially the same form, and a new rule that is substantially the same as such a rule cannot be issued unless the reissue or new rule is specifically permitted by law that entered into force after that date. a joint resolution not endorsing the original rule. “five
The House of Representatives adopted a joint decision on June 24, 2021, and the Senate on May 11, 2021. President Biden signed the resolution on June 30, 2021, thereby ending the rule. Now, a patchwork quilt of judgments issued before the OCC issued the Rule will oversee the true determination of the creditor and determine which law applies.
As we have reported, we believe that the abolition of the true creditor rule is largely symbolic and that the risks for market borrowing remain largely the same.6 That being said, the best ways to mitigate the risks associated with invoking model loans provided by banks include: (1) ensuring that loan agreements contain strong arbitration clauses that reflect the contractual agreement to arbitrate any claims and do not allow class action arbitration,7 and (2) caps on interest rates below the threshold that CFPBs and state-owned AGs usually target (usually 36%).
one For a discussion of the bank creation model, see our memo for clients and friends. Credit market news: who is my lender? (March 14, 2018).
2 2 CFR 7.1031 (b).
3 For more information on the Congressional Review Act, see Memo to clients and friends, Marketplace Lending Update # 9: Be True? Not necessary (May 21, 2021).
four 5 USC § 801 (f).
five 5 USC § 801 (b) (2).
6 See note 3 above.
7 See American Express Co. et al. v. Italian Colors Restaurant et al., 570 US 228 (2013) (ruling that Federal Arbitration Law does not permit courts to invalidate a contractual waiver of collective arbitration on the ground that the plaintiff’s individual arbitration costs exceed potential foreclosure).
© Copyright 2021 Cadwalader, Wickersham & Taft LLPReview of National Legislation, Volume XI, Number 197