OCC and FDIC Issue Proposed Rules to Undo Madden v. Midland Decision

In recent days, both the Office of the Comptroller of the Currency (OCC) and the FDIC announced that they were proposing rules to clarify the “Valid When Made” doctrine.

According to an OCC Press Release, the rule would “clarify that when a national bank or savings association sells, assigns, or otherwise transfers a loan, interest permissible prior to the transfer continues to be permissible following the transfer.”

The “Valid When Made” doctrine was overturned by the U.S. Court of Appeals for the Second Circuit when they issued a ruling in Madden v. Midland Funding, LLC in 2015. In that ruling, the Second Circuit held that “a non-bank purchaser of bank-originated credit card debt was subject to New York State’s usury laws.”

In the OCC’s news release, they note that the proposed rule would apply to all national banks and state and federal savings associations.

The FDIC’s rule, which deals with the same issue, is slightly different. According to the FDIC’s  press release, “The FDIC’s proposal would codify legal guidance the agency has relied upon for more than 20 years regarding interest rates that may be charged by State-chartered banks and insured branches of foreign banks. The guidance, which is consistent with decades of case law, provides that a permissible interest rate on a loan, as permitted by the law where the bank is located, would not be affected by subsequent events, such as a change in State law, a change in the relevant commercial paper rate, or the sale/assignment/transfer of the loan.”