Federal Court Upholds OCC And FDIC Valid When Made Rules

• Published date: 08 March 2022
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Financial Services, Trials & Appeals & Compensation
• Law Firm: McGlinchey Stafford
• Author: Colin Quillinan, Arthur J. Rotatori and Robert W. Savoie

On Tuesday, February 8, 2022, the United States District Court for the Northern District of California issued two separate orders that upheld the OCC's and FDIC's "valid-when-made" rules.

In 2020, the OCC and FDIC issued separate rules addressing, among other things, uncertainty in secondary markets following the decision of Madden v. Midland Funding, LLC, 786 F.3d 246 (2d Cir. 2015) which established that usury claims against non-bank assignees were not preempted by the National Banking Act of 1864 (NBA). The OCC promulgated a rule entitled "Permissible Interest on Loans That Are Sold, Assigned, or Otherwise Transferred" which is codified under 12 CFR ' 160.110(d) and provided that permissible interest on loans originated by savings associations is not affected by the sale, assignment, or other transfer of the loan. Additionally, the FDIC promulgated its own "valid when made" rule entitled "Interest Rate Authority" under 12 CFR ' 331.4(e) that clarified that the interest rate lawfully assessed by an originating depository institution is not impacted by the sale, assignment, or other transfer of the loan or a change in state law.

As expected, a small number of states mounted a legal challenge related to policy concerns with these rules which, they argued, may enable "rent-a-charter" schemes that seek to evade state usury limits.

In a major victory for the OCC and FDIC, United States District Court Judge Joseph White issued two separate orders which granted summary judgment in favor of the agencies in lawsuits brought by the states.

In both cases, the Plaintiff states alleged that the agencies violated the Administrative Procedures Act when they promulgated their respective rules.

In its order granting the FDIC's cross-motion for summary judgment, the Court found that the FDIC did not exceed its statutory authority when it promulgated 12 CFR ' 331.4(e). The Court turned to a Chevron analysis and concluded that the FDIC's rule was not unreasonable or arbitrary and capricious and that...