Preemption of state interest rate limitations: current challenges involving bank partnership models

Ashley Simonsen published an article on the statutory and regulatory background of preemption and “true lender” challenges to bank partnership models in The Review of Banking & Financial Services.

"In recent years, state regulators and private plaintiffs have sought to attack bank partnership models, including marketplace lending arrangements, by arguing that the ‘true lender’ on the loans is not the bank that issued the loans, but rather a third party involved in their origination and sale."

"Under longstanding federal law that serves as a primary underpinning of today’s credit markets nationwide, federal and state-chartered FDIC-insured banks have the authority to make and sell loans without regard to state-law limitations concerning interest rates in states other than the bank’s home state. Federal law also specifically contemplates that they will partner with third parties to provide services in connection with their lending programs. ’True lender’ theories are inconsistent with governing federal law and, if accepted, would chill the market for interstate lending. To put an end to any remaining doubts on this subject, Congress should heed Treasury’s recommendation to reconfirm that the existence of a service or economic relationship between a bank and a third party (including fintech companies) does not affect the role of the bank as the true lender of loans it makes. And the OCC and FDIC should issue proposed rulemaking — much like their recent proposed rules reaffirming the valid-when-made rule — confirming these principles."

To view the full article, please click here.