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Brooks first move is finalizing ‘valid when made’

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Banking
Friday, May 29, 2020

Brian Brooks officially took over May 29 as the acting comptroller of the currency, following the resignation of Comptroller Joseph Otting.

Brooks issued a statement that laid out his priorities for the Office of the Comptroller of the Currency (OCC) as he steps into the new role, and hours later, announced the OCC finalized a rule clarifying the “valid when made” standard on the sale and purchase of loans.

The issue had been clouded since the U.S. Court of Appeals for the Second Circuit’s ruling in Madden v. Midland Funding, LLC.

“Today, as one of my first acts as acting comptroller of the currency, I signed a final rule to protect (Abraham) Lincoln’s vision and to clarify that a bank may transfer a loan without affecting the legally permissible interest term,” Brooks said in a statement. “The rule supports the orderly function of markets and promotes the availability of credit by answering the legal uncertainty created by the Madden decision. Such certainty allows secondary markets to work efficiently and to serve their essential role in the business of banking and helping banks access liquidity and alternative funding, improve financial performance ratios, and meet customer needs.”

The rule applies to all national banks and state and federal savings associations and will take effect 60 days after publication in the Federal Register.

The move was met with praise by the Consumer Bankers Association (CBA).

“CBA appreciates the OCC’s efforts to clarify years of uncertainty caused by the Madden case,” CBA President and CEO Richard Hunt said in a statement. “The final rule is a positive development and will allow the nation’s banks to further fulfill the needs of consumers and continue operating in a safe and sound manner.”

Consumer advocate groups, however, were not as excited.

“The last thing we need during the COVID-19 crisis is more predatory lending or schemes to evade state interest rate caps. Interest rate limits are the simplest and most effective protection against predatory lending, and states have limited interest rates since the founding of our nation,” said Lauren Saunders, associate director of the National Consumer Law Center, in a press release. “It’s deeply disturbing that the OCC is encouraging rent-a-bank schemes to evade state laws that prohibit triple-digit loans.”

The rule had been proposed by Otting’s agency in November 2019, and in reviewing the more than 60 comments OCC received, the final rule states that those opposed to the rule cited legal and policy concerns.

“Many commenters argued that the OCC does not have the authority to issue this regulation,” the rule states. “Opposing commenters also questioned the need for the rule, stating there is no evidence that legal uncertainty has had negative effects on banks or markets. Finally, certain commenters stated that the NPR would facilitate predatory lending by promoting rent-a-charter relationships and allowing nonbanks to evade otherwise applicable state law.”

The rule states that OCC looked into comments on the agency’s authority to issue the rule.

“The OCC has carefully considered these comments and believes there is ample authority to issue this regulation,” the rule states.

The rule also addressed the concerns over predatory lending practices which some commenters made.

“These commenters asserted that the proposal would undermine or eliminate state interest caps, a vital tool that states use to protect residents against predatory lending,” the rule states. “The OCC disagrees with these commenters’ criticisms of this rulemaking.”

The rule states that the agency has “consistently opposed” predatory lending, including through relationships between banks and third parties.

“Nothing in this rulemaking in any way alters the OCC’s strong position on this issue, nor does it rescind or amend any related OCC issuances,” the rule states. “Because commenters are concerned that the rule would undermine state interest caps, it is also important to emphasize that sections 85 and 1463(g) incorporate, rather than eliminate, these state caps. As noted above, these statutes require that a bank refer to, and comply with, the interest cap established by the laws of the state where the bank is located. Thus, disparities between the interest caps applicable to particular bank loans result primarily from differences in the state laws that impose these caps. This rule does not change that.”

Earlier in the day, Brooks address in a statement other priorities of the agency, saying he was “deeply honored” to serve the country at this time.

“Over the past several months, the federal banking system has been integral to the nation’s response to COVID-19,” he stated. “It has been a central means to deliver relief to businesses and consumers and has continued to function admirably under significant stress. Banks and savings associations entered this crisis well positioned to play this important role. They remain a source of strength for the economy and an engine of opportunity.”

Brooks said that the long 157-year history of the OCC provides the agency with the understanding that the pandemic’s effects will be temporary.

“While managing through its effects will take significant focus and effort, we must not lose sight that we aim toward a longer, brighter purpose,” he stated. “We should approach our work not just with an eye to the next year, but to ensure the federal banking system adapts to the changing needs of consumers, markets, and the nation for the next 50 or 100 years.”

To handle the challenges today and in the future, Brooks laid out four main priorities for the OCC:

  1. Build upon responsible innovation to help the banking system keep up with changes in the way American consumers and businesses manage their finances;
  2. Enhance the strength of the federal banking system by enhancing the scope and relevance of the national charter;
  3. Ensure banks serve their entire community through fair access to credit, capital, and financial services; and
  4. Provide OCC employees engaging, rewarding, and challenging career opportunities.

He began with innovation, saying it was a personal passion of his, and he believes the OCC can build on the foundation it has to allow institutions to capitalize on technology and innovation in their products and services.

“Some of that work includes defending our authority to issue bank charters that support companies’ ability to engage in the business of banking on a national scale, including taking deposits, lending money, or paying checks,” he stated. “We should support banks’ use of new technology, products, and models that safely and fairly accelerate the velocity of money, create greater financial inclusion, and empower consumers and businesses with more control over their financial affairs.”

In discussing the importance of strong national bank charters, Brooks cited history – and Broadway – to make his point.

“Lincoln understood this when he created a system of national banks in 1863 to unify our republic, provide for interstate commerce, and solidify a national currency with the country’s full faith and credit behind it,” Brooks stated. “(Alexander) Hamilton understood this, too, although Lin-Manuel Miranda gave it a better melody and educated a generation about the centrality of national banks to the collective prosperity of a nation.

“Maintaining that system requires vigilance and care, but we also have to remember that we are not curating a history museum — we’re overseeing a system that has to be responsive to the needs of Americans in this generation and the next.”

That means the OCC will work to clarify what “true lender” means, Brook stated, to support the idea of valid when made, and to define what should be the parameters of fintech charters or other special-purpose charters.

Brooks talked about fair access to services and credit in communities, but not just about the Community Reinvestment Act, which Otting finalized a day before he stepped down.

“There is more to it than that. Section 324 of the Dodd-Frank Act clarifies that the OCC mission includes ensuring ‘fair access to financial services, and fair treatment of customers by, the institutions and other persons subject to its jurisdiction.’ Fair access has come under attack,” Brooks stated. “Whether under the disreputable practice of ‘Choke Point’ or under the guise of reputation risk, we should not tolerate lawful entities being denied access to our federal banking system based on their popularity among a powerful few. That is a dangerous and untenable practice that we will work to correct.”

Finally, he discussed staffing and providing a good working environment for OCC employees.

“The OCC Executive Committee and I will do everything in our power to provide a world-class place for OCC employees to work that delivers the resources and support necessary to successfully oversee the world’s most respected banking system,” he stated. “These priorities will guide our effort over the months ahead and will ensure a safe, sound, and fair federal banking system; will help banks better serve the consumers, businesses, and communities that rely upon them, and will promote growth and economic opportunity, particularly for Main Street America.”

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