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MONTH-IN-BRIEF (May 2020)

Banking Law

OCC Issues Final Rule on Permissible Interest on Transferred Loans

By Lynette I. Hotchkiss, McGlinchey Stafford, PLLC

On May 29, 2020, the Office of the Comptroller of the Currency (“OCC”) issued a final rule to clarify that when a bank sells, assigns, or otherwise transfers a loan, the interest rate that was permissible before the transfer is not affected by the transfer. The OCC issued this rule to clarify the legal uncertainty created by recent developments, including the decision by the U.S. Court of Appeals for the Second Circuit in Madden v. Midland Funding, in which the court held that a purchaser of a loan originated by a national bank could not charge interest at the rate permitted for the national bank if that rate was not permitted under a usury cap applicable to the purchaser. The final rule reaffirms the “long-standing understanding that a bank may transfer a loan without affecting the permissible interest term.”  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. 

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