On July 29, the Attorneys General for the States of California, Illinois and New York (State AGs) filed suit seeking declaratory and injunctive relief in the US District Court for the Northern District of California (Complaint) against the Office of the Comptroller of the Currency (OCC), the primary federal regulator for national banks and federal savings banks (each, a Bank), in connection with the OCC’s issuance of its final “valid when made” rule that was effective on August 3 (VWM Rule). The VWM Rule provides that “when a national bank or savings association sells, assigns, or otherwise transfers a loan, interest permissible before the transfer continues to be permissible after the transfer.” The OCC issued the VWM Rule because it believed that it was necessary in light of the uncertainty created by the Second Circuit in 2015 with the issuance of its decision in Madden v. Midland Funding (786 F.3d 286, 2nd Cir. 2015) (holding that a “purchaser of a loan originated by a national bank could not charge interest at the rate permissible for the bank if that rate would be impermissible under the lower usury cap applicable to the purchaser”).
The Complaint alleges that the VWM Rule would “dramatically expand preemption of state interest-rate caps, allowing not just [national banks and federal savings banks] but any entity that buys their loans to charge interest at rates in excess of rates permitted by state law.” The Complaint also alleges that the VWM Rule is “beyond the OCC’s power to issue, is contrary to statute, and would facilitate predatory lending through sham ‘rent-a-bank’ partnerships designed to evade state law.” In support of its action, the Complaint also states that the VWM Rule “drastically alters the statutory scheme and regulatory regime that Congress established by unlawfully extending federal law in order to preempt state rate caps that would otherwise apply to those non-bank entities.”
Notably, the Complaint does not address the Federal Deposit Insurance Corporation’s “valid when made rule” that is effective for state-chartered banks that becomes effective on August 21.
A copy of the Complaint is available here.