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Consumer Credit Regulation: 3.5.2.5 Special Rule for Arkansas State Banks

There is a special rate provision in 12 U.S.C. § 1831u(f) that applies only to states with a constitutional provision limiting the maximum lawful rate of interest on a contract to no more than 5% above the discount rate for ninety-day commercial paper in effect at the federal reserve bank for the federal reserve district in which such state is located. This provision applies only to Arkansas.443

Consumer Credit Regulation: 3.5.2.6 Subsidiaries of Depositories

Rate exportation does not apply to subsidiaries of national banks or federal savings associations. Prior to the Dodd-Frank Act, the Supreme Court interpreted federal law as allowing national bank “operating” subsidiaries (but not “financial” subsidiaries446) to be treated the same as the national banks,447 and this implied that a national bank’s operating subsidiary could export its home state rate caps.

Consumer Credit Regulation: 3.5.3.2.1 Introduction to rights of assignees of bank loans

Banks and other depositories may assign their credit accounts under different scenarios, including selling defaulted accounts to debt buyers, selling loans to non-banks in a rent-a-bank scheme, or assigning accounts to a securitization trust. An important question is whether these assignees of bank-originated credit can ignore the interest rate laws of the consumer’s state that would normally apply to nonbank lenders.

Consumer Credit Regulation: 3.5.3.2.1a The OCC and FDIC rules

The OCC, effective August 3, 2020, issued a rule applicable to national banks that provides that “Interest on a loan that is permissible under 12 U.S.C. § 85 [i.e., under NBA rate exportation] shall not be affected by the sale, assignment, or other transfer of the loan.”461 The OCC with the same effective date issued a parallel rule applicable to federal savings associations.462

Consumer Credit Regulation: 3.5.3.2.1b Challenges to the OCC and FDIC rules

The OCC and FDIC rules have survived two legal challenges brought by several states before the same judge in the Northern District of California, one concerning the OCC rule471 and the other the FDIC rule.472 Interestingly, neither case confirmed that the OCC and FDIC were correct in their interpretation of the federal rate exportation statutes.

Consumer Credit Regulation: 3.5.3.2.2 Decisions considering assignee rights prior to the OCC or FDIC rules

It is too late at this point for another facial challenge to the OCC and FDIC rules under the Administrative Procedures Act. But it is possible that, in an as-applied context, other courts will find that the rules are invalid interpretations of the rate exportation laws and that the assignee is not permitted to charge the same rate that a bank could charge. For example, as in the facts of Madden v.

Consumer Credit Regulation: 3.5.4.1 Introduction

Rate exportation for federal or federally insured depositories—which effectively eliminated all interest rate limits for banks—is so attractive that non-depository creditors at times enter arrangements with depositories seeking to evade state usury laws—these arrangements are sometimes referred to as “rent-a-bank” or “rent-a-charter.” For example, the non-depository may solicit a loan, determine who receives the loan, service the loan, receive most of the profit from the loan, and take on almost all

Consumer Credit Regulation: 3.5.4.2.1 OCC and OTS Guidance and other actions

Between 2000 to 2005, the OCC and the Office of Thrift Supervision (OTS) used supervision and guidance to shut down rent-a-bank partnerships with traditional, short-term payday lenders.509 In 2019, the OCC began taking actions that supported a resurgence of rent-a-bank lending involving longer-term loans. But those actions had been curtailed by 2021.

Consumer Credit Regulation: 3.5.4.2.2 FDIC guidance and statements

The FDIC was initially slower than the OCC and OTS in curtailing rent-a-bank lending by payday lenders in the early 2000s.535 But eventually, the FDIC used supervision and guidance to shut down rent-a-bank partnerships with traditional, short-term payday lenders. But as rent-a-bank lending by longer-term lenders emerged, FDIC-supervised banks again became the bank of choice, with little action by the FDIC.

Consumer Credit Regulation: 3.5.5.2 Background on Branch Banking

In Marquette National Bank v. First of Omaha Corp., the Supreme Court held that the fact that a national bank in one state extends credit by mail to a consumer in a second state does not make the second state the bank’s home state.668 The Court reasoned that this was no different from an out-of-state customer coming across a state line to obtain a loan in the second state.

Consumer Credit Regulation: 3.5.5.5 Electronic Banking

An OCC regulation addresses where a bank is located when it maintains technology out-of-state. A national bank is not located in a state solely because it physically maintains technology in that state, such as a server or automated loan center; nor is it located in a state because the bank’s products or services are accessed through electronic means by consumers located in the state.699