The Office of the Comptroller Currency (OCC) has issued a final rule affirming that permissible interest on a loan made by a national bank or federal thrift remains valid when the loan is transferred or sold, codifying the “valid when made” principle for nationally chartered banks and federal savings and loans. Under the final rule, federal regulations would provide that interest on permissible loans “shall not be affected by the sale, assignment, or other transfer of the loan.”
The so – called “Madden fix” addresses a Second Circuit Court of Appeals ruling in Madden v Midland Funding, which held that a non-bank buyer of a loan issued by a national bank could not export the originated interest rate into another state. The Supreme Court declined to take up an appeal of Madden, resulting in conflicting precedent around the country and increasing the urgency for regulatory or legislative action.
The OCC final rule became effective on August 3, 2020.
In related action, the FDIC has also issued a similar final rule ensuring that “valid when made” is codified for both national and state-chartered banks. The final rule provides that State banks are authorized to charge interest at the rate permitted by the State in which the State bank is located, or one percent in excess of the 90-day commercial paper rate, whichever is greater. The FDIC summarizes that its final rule and related regulations provide that:
[W]hether interest on a loan is permissible under [federal law] is determined at the time the loan is made; and
[I]nterest on a loan permissible under [federal law] is not affected by a change in State law, a change in the relevant commercial paper rate, or the sale, assignment, or other transfer of the loan.
The FDIC final rule became effective on August 21, 2020.