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19 feb FDIC and OCC try to Settle Uncertainty produced by Second Circuit’s Madden choice

“True lender” uncertainty remains

The agencies explicitly do not address the validity of certain bank-fintech partnership models that remain subject to “true lender” challenges and regulatory scrutiny while the proposed rules seek to remediate the legal uncertainty resulting from the Madden decision. 3 The lender that is“true issue has arisen within the context of particular lending arrangements between a bank and a non-bank entity, which experts have actually referred to as “rent-a-charter” or “rent-a-bank” schemes. These experts argue that the “rent-a-charter” model—in which the non-bank entity typically markets the mortgage, makes the credit choice and directs its bank-partner to originate and temporarily hold such loan before buying it through the bank—improperly permits the non-bank entity to profit through the broad security associated with exportation doctrine regarding the loan’s rate of interest also to claim its very own exemption from relevant state check out this site loan provider certification and usury limits by perhaps perhaps maybe not acting due to the fact loan provider. These experts genuinely believe that the non-bank entities should be thought about the “true lender” into the deals as the bank just isn't adequately involved in the financing system and will not get the advantages and take the potential risks anticipated of a lender that is true. Nevertheless, such a structural view of bank-fintech partnerships could be extremely simplistic. Used, the type of these partnerships is nuanced and their structures is extremely adjustable for a case-by-case foundation.

The foundation associated with the “true loan provider” challenge could be traced back once again to the Georgia legislature’s efforts in 2004 to avoid specific payday lenders from circumventing state’s usury laws by stepping into financing programs with out-of-state banking institutions.