[Federal Register Volume 85, Number 106 (Tuesday, June 2, 2020)]
[Rules and Regulations]
[Pages 33530-33536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-11963]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 7 and 160

[Docket ID OCC-2019-0027]
RIN 1557-AE73


Permissible Interest on Loans That Are Sold, Assigned, or 
Otherwise Transferred

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Final rule.

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SUMMARY: Federal law establishes that national banks and savings 
associations (banks) may charge interest on loans at the maximum rate 
permitted to any state-chartered or licensed lending institution in the 
state where the bank is located. In addition, banks are generally 
authorized to sell, assign, or otherwise transfer (transfer) loans and 
to enter into and assign loan contracts. Despite these authorities, 
recent developments have created legal uncertainty about the ongoing 
permissibility of the interest term after a bank transfers a loan. This 
rule clarifies that when a bank transfers a loan, the interest 
permissible before the transfer continues to be permissible after the 
transfer.

DATES: The final rule is effective on August 3, 2020.

FOR FURTHER INFORMATION CONTACT: Andra Shuster, Senior Counsel, Karen 
McSweeney, Special Counsel, or Priscilla Benner, Senior Attorney, Chief 
Counsel's Office, (202) 649-5490, for persons who are deaf or hearing 
impaired, TTY, (202) 649-5597, Office of the Comptroller of the 
Currency, 400 7th Street SW, Washington, DC 20219.

SUPPLEMENTARY INFORMATION: 

I. Background

    On November 21, 2019, the OCC published a notice of proposed 
rulemaking (proposal or NPR) to codify its conclusion that when a 
national bank or savings association (bank) sells, assigns, or 
otherwise transfers (transfers) a loan, interest permissible before the 
transfer continues to be permissible after the transfer.\1\
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    \1\ Permissible Interest on Loans That Are Sold, Assigned, or 
Otherwise Transferred, 84 FR 64229 (Nov. 21, 2019).
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    As the proposal explained, a bank may charge interest on a loan at 
the maximum rate permitted to any state-chartered or licensed lending 
institution in the state where the bank is located. In addition, banks 
are generally authorized to transfer their loans and to enter into and 
assign loan contracts. Despite these authorities, recent developments 
have created legal uncertainty about the ongoing permissibility of the 
interest term after a bank transfers a loan.
    Consistent with the proposal, this regulation addresses that legal 
uncertainty by clarifying and reaffirming the longstanding 
understanding that a bank may transfer a loan without affecting the 
permissible interest term. Based on its supervisory experience, the OCC 
believes that unresolved legal uncertainty about this issue may disrupt 
banks' ability to serve consumers, businesses, and the broader economy 
efficiently and effectively, particularly in times of economic stress. 
The OCC also believes that enhanced legal certainty may facilitate 
responsible lending by banks, including in circumstances when access to 
credit is especially critical.

II. Overview of Comments

    The OCC received over sixty comments on its NPR, including comments 
from industry trade associations, nonbank lenders, community groups, 
academics, state government representatives, and members of the public. 
Many commenters expressed support for the rule. Some stated that the 
legal uncertainty discussed in the proposal has had negative effects on 
the primary and secondary markets for bank loans. They argued that 
legal certainty regarding a bank's ability to transfer non-usurious 
loans without affecting the interest term would benefit banks and 
markets, including for liquidity and diversification purposes. Many 
supporting commenters also agreed that the OCC has the authority to 
address this issue by regulation and that the proposal reflected a 
permissible interpretation of relevant Federal banking law.
    The OCC also received comments opposed to the rule, which raised 
both legal and policy concerns. Many commenters argued that the OCC 
does not have the authority to issue this regulation. Several also 
argued that the OCC's proposal was subject to, but did not comply with, 
the substantive and procedural provisions in 12 U.S.C. 25b. Opposing 
commenters also questioned the need for the rule, stating there is no 
evidence that legal uncertainty has had negative effects on banks or 
markets. Relying on these and other arguments, some commenters also 
argued that the OCC's proposal did not comply with the Administrative 
Procedure Act (APA).\2\ Finally, certain commenters stated that the NPR 
would facilitate predatory lending by promoting rent-a-charter 
relationships and allowing nonbanks to evade otherwise applicable state 
law.
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    \2\ 5 U.S.C. 551 et seq.
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    Two commenters provided empirical studies analyzing the effects of 
the Madden v. Midland Funding, LLC \3\ decision (Madden), including 
evidence that Madden restricted access to credit for higher-risk 
borrowers in states

[[Page 33531]]

within the Second Circuit and that it caused a rise in personal 
bankruptcies due to a decline in marketplace lending, especially for 
low-income households.
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    \3\ 786 F.3d 246 (2d Cir. 2015). In this case, the U.S. Court of 
Appeals for the Second Circuit held that a purchaser of a loan 
originated by a national bank could not charge interest at the rate 
permissible for the bank if that rate would be impermissible under 
the lower usury cap applicable to the purchaser.
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III. Analysis

    As noted in the proposal, the OCC is undertaking this rulemaking to 
clarify that a bank may transfer a loan without impacting the 
permissibility or enforceability of the interest term in the loan 
contract, thereby resolving the legal uncertainty created by the Madden 
decision. To support this conclusion, the proposal discussed a bank's 
authority to lend money, to make contracts, to charge interest 
consistent with the laws of the state in which it is located, and to 
subsequently transfer that loan and assign the loan contract. It also 
discussed the principles of ``valid-when-made'' and the assignability 
of contracts, which, if applied to the transfer of a loan, would 
generally produce an outcome consistent with the OCC's conclusion.

Authority

    As noted above, although many supporting commenters expressly 
agreed that the OCC may promulgate this rule, many opposing commenters 
questioned the OCC's authority, relying on several principal arguments:
     Certain Federal statutes (12 U.S.C. 85 and 1463(g)) are 
unambiguous and only address the interest a bank may charge. Because 
these statutes are unambiguous, the OCC cannot invoke National Cable & 
Telecommunications Ass'n v. Brand X internet Services \4\ (Brand X) to 
overturn the result in Madden.
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    \4\ 545 U.S. 967 (2005).
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     Valid-when-made is not a historical usury principle that 
supports the OCC's proposal.
     There is no basis to conclude that Federal law should 
preempt state usury laws based on a bank's power to assign contracts.
     There is no basis to conclude that Federal law should 
preempt state usury laws based on a bank's authority to transfer loans.
    The OCC has carefully considered these comments and believes there 
is ample authority to issue this regulation. Federal law grants 
national banks broad authority to engage in the business of banking.\5\ 
Specifically relevant here, the National Bank Act (NBA) provides 
national banks with enumerated powers, including the ability to lend 
money, and ``all such incidental powers as shall be necessary to carry 
on the business of banking.'' \6\ By statute, national banks also have 
the authority to transfer their loans.\7\
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    \5\ The OCC will discuss the authority to issue this rule for 
national banks before discussing the authority to issue this rule 
for savings associations.
    \6\ 12 U.S.C. 24(Seventh) and 371.
    \7\ 12 U.S.C. 24(Seventh) and 371; 12 CFR 7.4008 and 34.3; see 
also Planters' Bank of Miss. v. Sharp, 47 U.S. 301, 322 (1848) 
(concluding that the authority to transfer a loan is a ``necessarily 
implied'' corollary to the authority to make a loan). It should be 
noted that rights authorized by a statute need not be express--they 
are often implicit in the other rights given by the statute. See, 
e.g., Franklin Nat'l Bank v. New York, 347 U.S. 373, 377-78 (1954) 
(concluding that the right to accept savings deposits implicitly 
includes the right to advertise).
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    Furthermore, the NBA expressly authorizes national banks to make 
contracts.\8\ Among the essential rights associated with this power is 
the right to assign some or all of the benefits of a contract to a 
third party.\9\ Generally, all contractual rights may be assigned ``in 
the absence of clear language expressly prohibiting the assignment and 
unless the assignment would materially change the duty of the obligor 
or materially increase the obligor's burden or risk under contract or 
the contract involves obligations of a personal nature.''\10\ In 
addition, contractual rights generally may not be assigned if the 
assignment is ``specifically forbidden by statute or . . . void as 
against public policy.'' \11\ All ordinary business contracts are 
assignable, and a contract for money due in the future is among the 
types of contracts that normally may be assigned.\12\ Therefore, a 
national bank's authority to enter into loan contracts pursuant to 12 
U.S.C. 24(Third) necessarily includes the authority to assign such loan 
contracts.\13\
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    \8\ 12 U.S.C. 24(Third).
    \9\ Restatement (Second) of Contracts section 317 (Am. Law Inst. 
1981).
    \10\ 29 Williston on Contracts section 74:10 (4th ed.) (footnote 
omitted).
    \11\ Id. at section 74:23.
    \12\ See Bank of Am., N.A. v. Rice, 780 S.E.2d 873 (N.C. Ct. 
App. 2015).
    \13\ See also Franklin Nat'l Bank, 347 U.S. at 377-78.
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    When a national bank exercises its authority to lend money and 
enters into a loan contract, the NBA authorizes the bank to ``charge on 
any loan . . . interest at the rate allowed by the laws of the State . 
. . where the bank is located.'' \14\ Section 85 is the sole provision 
that governs the interest permissible on a loan made by a national 
bank, and it operates primarily by incorporating the usury laws of the 
state in which the bank is located. Section 85 and 12 U.S.C. 86, which 
establishes the remedy for a violation of section 85, constitute the 
comprehensive statutory scheme governing the interest permitted on 
national bank loans.\15\
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    \14\ 12 U.S.C. 85. Section 85 also allows a national bank to 
charge ``1 per centum in excess of the discount rate on ninety-day 
commercial paper in effect at the Federal reserve bank in the 
Federal reserve district where the bank is located.'' Id.
    \15\ See Beneficial Nat'l Bank v. Anderson, 539 U.S. 1 (2003).
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    The NBA thus clearly establishes that a national bank may (1) lend 
money, pursuant to a loan contract, with an interest term that is 
consistent with the laws of the state in which the bank is located and 
(2) subsequently transfer that loan and assign the loan contract. 
However, the comprehensive statutory scheme regarding interest 
permitted on national bank loans does not expressly address how the 
exercise of a national bank's authority to transfer a loan and assign 
the loan contract affects the interest term. When Congress enacted the 
NBA, it understood that loan transfers were a fundamental aspect of the 
business of banking and that such transfers would play an important 
role in the national banking system.\16\ Therefore, section 85's 
silence in this regard is ``conspicuous[ ],'' \17\ and the OCC may 
interpret section 85 to resolve this silence.\18\
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    \16\ See Planters' Bank, 47 U.S. at 323 (``[Banks] must be able 
to assign or sell [their] notes when necessary and proper, as, for 
instance, to procure more specie in an emergency, or return an 
unusual amount of deposits withdrawn, or pay large debts for a 
banking-house.'').
    \17\ Baldwin v. United States, 921 F.3d 836, 842 (9th Cir. 
2019).
    \18\ See Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 
467 U.S. 837, 843 (1984) (``[I]f the statute is silent or ambiguous 
with respect to the specific issue, the question for the court is 
whether the agency's answer is based on a permissible construction 
of the statute.''); see also Robinson v. Shell Oil Co., 519 U.S. 
337, 341 (1997) (``The plainness or ambiguity of statutory language 
is determined by reference to the language itself, the specific 
context in which that language is used, and the broader context of 
the statute as a whole.'') (emphasis added); Smiley v. Citibank 
(S.D.), N.A., 517 U.S. 735 (1996) (Smiley) (deferring to the OCC's 
reasonable interpretation of section 85's ambiguity with respect to 
meaning of ``interest'').
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    The OCC is not persuaded by commenters who argued that 12 U.S.C. 
1735f-7a forecloses an argument that section 85's silence is ambiguous 
as to its application to loan transfers. These commenters argued that 
section 1735f-7a preempts state usury laws and expressly applies to 
originations and sales of certain loans, and therefore, Congress must 
be presumed to have intentionally omitted similar language in section 
85, thereby precluding the application of section 85 to loan transfers. 
These commenters argued that this presumption is particularly strong, 
because several statutory parallels to section 85 were enacted at the 
same time as section 1735f-7a. At least one commenter also cited 12 
U.S.C. 3803 to

[[Page 33532]]

make a similar argument.\19\ The OCC disagrees. First, while the OCC 
agrees that section 1735f-7a applies to certain loans that have been 
transferred,\20\ this is not by virtue of express statutory language 
addressing loan transfers. Rather, section 1735f-7a implicitly applies 
to transferred loans, notwithstanding its silence on this issue, for 
reasons similar to why the OCC concludes that section 85 applies to 
transferred loans. Moreover, even if section 1735f-7a expressly applied 
to loan transfers, it would further highlight the ambiguity created by 
the silence in section 85.\21\ As courts have stated, affirmative 
language in one provision (section 1735f-7a) and statutory silence in 
another (section 85) can indicate that Congress intended to provide the 
administering agency (the OCC) with discretion to interpret the latter 
statute.\22\
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    \19\ This statute authorizes housing creditors to make, 
purchase, and enforce alternative mortgage transactions and 
expressly preempts certain state laws.
    \20\ See S. Rep. No. 96-368, at 19 (1979) (``In connection with 
the provisions in this section, it is the Committee's intent that 
loans originated under this usury exemption will not be subject to 
claims of usury even if they are later sold to an investor who is 
not exempt under this section.'').
    \21\ This same conclusion applies to the extent that section 
3803 expressly addresses transferred loans.
    \22\ Catawba Cty., N.C. v. EPA, 571 F.3d 20, 36 (D.C. Cir. 2009) 
(``Silence . . . may signal permission rather than proscription.''); 
Cheney R. Co., Inc. v. ICC, 902 F.2d 66, 69 (D.C. Cir. 1990) 
(``[T]he contrast between Congress's mandate in one context with its 
silence in another suggests not a prohibition but simply a decision 
not to mandate any solution in the second context, i.e., to leave 
the question to agency discretion. Such a contrast (standing alone) 
can rarely if ever be the `direct[]' congressional answer required 
by Chevron.''); Clinchfield Coal Co. v. Fed. Mine Safety & Health 
Review Comm'n, 895 F.2d 773, 779 (D.C. Cir. 1990) (``[W]here an 
agency is empowered to administer the statute, Congress may have 
meant that in the second context the choice should be up to the 
agency.'').
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    After careful consideration, the OCC continues to conclude that it 
is appropriate to resolve the silence in section 85 by providing that 
when a bank transfers a loan, interest permissible before the transfer 
continues to be permissible after the transfer.
    Well before the passage of the NBA, the Supreme Court recognized 
one of the ``cardinal rules in the doctrine of usury'' and described it 
as follows: ``a contract, which, in its inception, is unaffected by 
usury, can never be invalidated by any subsequent usurious 
transaction.'' \23\ Courts have also held the inverse--a loan that is 
usurious at its inception remains usurious until purged by a new 
contract.\24\ Notwithstanding comments to the contrary, the OCC 
continues to read the cases cited in the proposal, particularly when 
considered in light of the court decisions establishing the inverse, to 
support a broad proposition: The usurious or non-usurious character of 
a contract endures through assignment.\25\
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    \23\ See Nichols v. Fearson, 32 U.S. (7 Pet.) 103, 109 (1833); 
see also Gaither v. Farmers' & Mechs.' Bank of Georgetown, 26 U.S. 
(1 Pet.) 37, 43 (1828).
    \24\ See, e.g., Auctus Fund, LLC v. Sunstock, Inc., 405 F. Supp. 
3d 218 (D. Mass. 2019); Heide v. Hunter Hamilton Ltd. P'ship, 826 F. 
Supp. 224 (E.D. Mich. 1993); Matthews v. Tripp, 285 Mich. 705 
(1938); Westman v. Dye, 214 Cal. 28 (1931); Tribble v. Anderson, 63 
Ga. 31 (1879).
    \25\ This reading has been endorsed by the Solicitor General of 
the United States. See Brief for the United States as Amicus Curiae, 
Midland Funding, LLC v. Madden, No. 15-610 (May 24, 2016). Many 
commenters also support this reading.
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    The OCC's interpretation is also supported by national banks' 
ability to assign contracts, as discussed above. Commenters argued that 
the interest term on a loan should be treated differently from other 
loan terms, including because it derives from a national bank's status 
under Federal law. For reasons stated in the proposal and herein, the 
OCC does not agree that the interest term of the contract should be 
treated differently, nor does it believe that the enforceability of an 
assigned interest term should depend on the licensing status of the 
assignor or assignee.\26\ Upon assignment, the third-party assignee 
steps into the shoes of the national bank and may enforce the rights 
the bank assigned to it under the contract.\27\ To effectively assign a 
loan contract and allow the assignee to step into the shoes of the 
national bank assignor, a permissible interest term must remain 
permissible and enforceable notwithstanding the assignment.\28\ The 
loan should not be considered usurious after the assignment simply 
because a third party is enforcing the contractually agreed-upon 
interest term.\29\ Furthermore, an assignment should not change the 
borrower's obligation to repay in any material way.\30\
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    \26\ See Olvera v. Blitt & Gaines, P.C., 431 F.3d 285, 286, 289 
(7th Cir. 2005) (``[T]he assignee of a debt . . . is free to charge 
the same interest rate that the assignor . . . charged the debtor . 
. . even if the assignee does not have a license that expressly 
permits the charging of a higher rate.''). As at least one commenter 
noted, this case interprets Illinois state law and, therefore, does 
not directly address the issues raised by this rulemaking. However, 
the OCC finds the holding and reasoning instructive to its analysis.
    \27\ Dean Witter Reynolds Inc. v. Variable Annuity Life Ins. 
Co., 373 F.3d 1100, 1110 (10th Cir. 2004) (stating that it was long-
established that ``an assignee stands in the shoes of the 
assignor'').
    \28\ See Olvera, 413 F.3d at 288-89.
    \29\ See id. at 286, 289.
    \30\ See 29 Williston on Contracts section 74:10.
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    Several commenters argued that, as common law, valid-when-made and 
the assignability of contracts do not provide the OCC with authority 
for this regulation. However, the OCC is not citing these tenets as 
independent authority for this rulemaking but rather as tenets of 
common law that inform its reasonable interpretation of section 85. 
Because Congress is presumed to legislate with knowledge of, and 
incorporate, common law, it is reasonable to interpret section 85 in 
light of these tenets.\31\
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    \31\ Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 
108 (1991).
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    The OCC's interpretation is also consistent with the purpose of 
section 85. This statute facilitates national banks' ability to operate 
lending programs on a nationwide basis, a characteristic fundamental to 
national banks since their inception.\32\ Recognizing the value of 
uniformity in applicable interest law, Congress extended the principles 
of section 85 to savings associations, state-chartered insured 
depository institutions, and insured credit unions.\33\ Then, in 2010, 
while carefully examining the application of state law to national 
banks, Congress expressly preserved the authority conferred by section 
85, thereby reaffirming its importance.\34\ Reading section 85 as 
applying only to loans that a national bank holds to maturity would 
undermine this statutory scheme.\35\
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    \32\ See Marquette Nat. Bank of Minneapolis v. First of Omaha 
Serv. Corp., 439 U.S. 299, 315-18 (1978) (concluding that Congress 
was aware of, and intended to facilitate, interstate lending when it 
enacted section 85); Easton v. Iowa, 188 U.S. 220, 229 (1903) 
(``[The NBA] has in view the erection of a system extending 
throughout the country, and independent, so far as powers conferred 
are concerned, of state legislation which, if permitted to be 
applicable, might impose limitations and restrictions as various and 
as numerous as the states.''); Tiffany v. Nat'l Bank of Mo., 85 U.S. 
409, 413 (1873) (``National banks have been National favorites . . . 
It could not have been intended, therefore, to expose them to the 
hazard of unfriendly legislation by the States . . . .'').
    \33\ See 12 U.S.C. 1463(g), 1785, and 1831d.
    \34\ 12 U.S.C. 25b(f).
    \35\ See Marquette, 439 U.S. at 312 (declining to interpret 
section 85 in a manner that would ``throw into confusion the complex 
system of modern interstate banking'').
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    The OCC's interpretation also promotes safe and sound operations, a 
core component of the OCC's mission as the prudential regulator of 
national banks. Even in the mid-nineteenth century, the ability to 
transfer loans was recognized as an important tool to manage liquidity 
and enhance safety and soundness.\36\ As the Supreme Court stated, 
``[banks] must be able to assign or sell [their] notes when necessary 
and proper, as, for instance, to procure more specie in an emergency, 
or return an

[[Page 33533]]

unusual amount of deposits withdrawn, or pay large debts for a banking-
house.'' \37\ Although the banking system has evolved significantly in 
the 150 years since Planters' Bank, national banks of all sizes 
continue to routinely rely on loan transfers to access alternative 
funding sources, manage concentrations, improve financial performance 
ratios, and more efficiently meet customer needs.\38\ While the Madden 
decision's effect on a particular national bank necessarily varies 
depending on the bank's business model, the resulting legal uncertainty 
impairs many national banks' ability to rely on this risk management 
tool, which is particularly worrisome in times of economic stress when 
funding and liquidity challenges may be acute.\39\ The OCC, therefore, 
concludes that its interpretation promotes safety and soundness.
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    \36\ Planters' Bank, 47 U.S. 301.
    \37\ Id. at 323.
    \38\ Comptroller's Handbook, Safety and Soundness, 
``Liquidity,'' at 5, June 2012.
    \39\ See Strike v. Trans-W. Disc. Corp., 92 Cal. App. 3d 735, 
745 (Cal. Ct. App. 1979) (concluding that the assignee of a bank 
note could continue to receive the rate the assigning bank could, 
because to conclude otherwise would ``prohibit-make uneconomic-the 
assignment or sale by banks of their commercial property to a 
secondary market[, which] would be disastrous in terms of bank 
operations and not conformable to the public policy exempting banks 
in the first instance''); see also LFG Nat'l Capital, LLC v. Gary, 
Williams, Finney, Lewis, Watson & Sperando P.L., 874 F. Supp. 2d 
108, 125 (N.D.N.Y. 2012) (stating the same).
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    The OCC also received comments arguing that the OCC's rulemaking is 
foreclosed by Madden. The OCC disagrees; the Second Circuit made no 
finding that section 85's language unambiguously forecloses the OCC's 
interpretation, nor did it rely on section 85 in arriving at its 
holding.\40\ Therefore, the Madden decision does not limit the OCC's 
ability to issue this rulemaking.
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    \40\ See Brand X, 545 U.S. at 982-83 (requiring that ``judicial 
precedent hold[ ] that the statute unambiguously forecloses the 
agency's interpretation'' (emphasis added)); see also Mhany Mgmt., 
Inc. v. Cty. of Nassau, 819 F.3d 581, 618-19 (2d Cir. 2016) 
(applying Brand X to adopt a more recent agency interpretation 
rather than two prior Second Circuit interpretations where the court 
``did not hold that the statute was unambiguous'').
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    With respect to the comments arguing that neither section 24(Third) 
nor section 24(Seventh) provides the OCC with authority to preempt 
state usury law, the OCC does not cite these statutes for this purpose. 
As this authority section makes clear, these statutes describe the 
scope of national bank authorities, highlight the silence in section 
85, and inform the OCC's efforts to resolve this silence.\41\
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    \41\ See King v. Burwell, 135 S. Ct. 2480, 2489 (2015) (``[W]hen 
deciding whether the language is plain, we must read the words `in 
their context and with a view to their place in the overall 
statutory scheme.' '' (quoting FDA v. Brown & Williamson Tobacco 
Corp., 529 U.S. 120, 133 (2000)).
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    Although the foregoing discussion specifically addresses national 
banks, it applies equally to savings associations. In 12 U.S.C. 
1463(g), Congress provided savings associations with authority similar 
to section 85 to charge interest as permitted by the laws of the state 
in which the savings association is located. Congress modeled section 
1463(g) on section 85 to place savings associations on equal footing 
with their national bank competitors, and thus, these provisions are 
interpreted in pari materia.\42\ Therefore, the OCC concludes that 
section 1463(g) should be interpreted coextensively with section 85 in 
this regard, which will help ensure that savings associations and 
national banks have equal authority to transfer their loans without 
affecting the permissibility of the interest term.
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    \42\ See Gavey Props./762 v. First Fin. Sav. & Loan Ass'n, 845 
F.2d 519, 521 (5th Cir. 1988) (``Given the similarity of language, 
the conclusion is virtually compelled that Congress sought to 
provide federally insured credit institutions with the same `most-
favored lender' status enjoyed by national banks.''); 61 FR 50951, 
50968 (Sept. 30, 1996) (``OTS and its predecessor, the FHLBB, have 
long looked to the OCC regulation and other precedent interpreting 
the national bank most favored lender provision for guidance in 
interpreting [12 U.S.C. 1463(g)] and OTS's implementing 
regulation.''); OTS letter from Harris Weinstein, December 24, 1992, 
1992 WL 12005275.
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    Based on the foregoing, the OCC concludes that, as a matter of 
Federal law, banks may transfer their loans without impacting the 
permissibility or enforceability of the interest term.

12 U.S.C. 25b

    Several commenters argued that the OCC's rule is subject to the 
substantive and procedural requirements set forth in section 25b and 
that the OCC has not complied with these requirements. The OCC 
disagrees and continues to conclude that the requirements of section 
25b are inapplicable to this rulemaking.
    Section 25b applies when the Comptroller determines, on a case-by-
case basis, that a state consumer financial law is preempted pursuant 
to the standard for conflict preemption established by the Supreme 
Court in Barnett Bank of Marion County, N. A. v. Nelson, Florida 
Insurance Commissioner,\43\ i.e., when the Comptroller makes a 
``preemption determination.'' \44\ Interpretations about the 
substantive scope of section 85 are not preemption determinations. For 
example, the two most recent substantive Supreme Court opinions on 
section 85 primarily analyze what the statute authorizes as a matter of 
Federal law, rather than focus on preemption.\45\ In fact, the Court 
specifically recognized this difference in Smiley, noting that ``the 
question of the substantive (as opposed to pre-emptive) meaning of a 
statute'' is distinct from ``the question of whether a statute is pre-
emptive.'' \46\ This rulemaking addresses the former question, i.e., 
the meaning of section 85. The proposal simply articulated the OCC's 
view about the substantive scope of authority granted to banks. The 
final rule adopts the same approach and thus is not a preemption 
determination under section 25b.\47\
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    \43\ 517 U.S. 25 (1996).
    \44\ See 12 U.S.C. 25b(b)(1)(B).
    \45\ See Smiley, 517 U.S. 735; Marquette, 439 U.S. 299.
    \46\ Smiley, 517 U.S. at 744 (emphasis in original).
    \47\ For these same reasons, the OCC is not persuaded by 
commenters who argued that sections 25b(b)(2), (e), and (h)(2) 
preclude the agency from issuing this rule.
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    The OCC also concludes that this rulemaking is outside the scope of 
section 25b because of section 25b(f), which provides that ``[n]o 
provision of title 62 of the Revised Statutes shall be construed as 
altering or otherwise affecting the authority conferred by section 
85.'' Section 25b is in title 62 of the Revised Statutes, and 
therefore, its requirements also do not alter or affect the authority 
conferred under section 85, including as interpreted in this 
rulemaking.\48\ For these reasons, the OCC disagrees with the 
commenters who argued that section 25b(f) does not exempt rules 
interpreting section 85.\49\
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    \48\ Section 25b(f) also supports the OCC conclusion that 
sections 25b(b)(2), (e), and (h)(2) do not preclude the agency from 
issuing this rule.
    \49\ This conclusion is supported by consideration of the 
parallel authority conferred under 12 U.S.C. 1831d, which is 
construed in pari materia with section 85. See, e.g., Greenwood Tr. 
Co. v. Massachusetts, 971 F.2d 818, 827 (1st Cir. 1992); FDIC 
General Counsel's Opinion No. 11, Interest Charges by Interstate 
State Banks, 63 FR 27282 (May 18, 1998). Congress did not subject 
Federal Deposit Insurance Corporation (FDIC) interpretations of 
section 1831d to section 25b or equivalent requirements. Given that 
sections 1831d and 85 are construed in pari materia, it would be 
incongruous to conclude that an OCC rule interpreting section 85 
would be subject to the requirements of section 25b while a 
substantively identical FDIC rule issued pursuant to parallel 
statutory authority would not. The same argument can be made 
regarding section 1463(g).
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    The OCC thus concludes that this rulemaking is not subject to the 
requirements of section 25b.\50\ Because the OCC concludes that these 
requirements are inapplicable, the OCC declines to address comments 
regarding how to comply with these requirements.
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    \50\ Some commenters also argued that section 25b applies to 
this rulemaking because the OCC cited sections 24(Third) and 
24(Seventh) in its proposal. As explained above, the OCC does not 
cite these statutes as direct authority for this rule or for their 
preemptive effect.

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[[Page 33534]]

Administrative Procedure Act

    Several commenters argued that the OCC's actions violate the APA. 
First, commenters argued that the OCC is acting ``in excess of 
statutory jurisdiction, authority, or limitations,'' \51\ because it 
lacks authority to issue the rule. As described in detail above, the 
OCC disagrees and concludes that it has the authority to issue this 
rule under sections 85 and 1463(g).
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    \51\ 5 U.S.C. 706(2)(C).
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    Second, several commenters argued that the OCC is acting ``without 
observance of procedure required by law''\52\ in violation of the APA 
because it did not comply with the procedural requirements in section 
25b. As explained above, the OCC concludes that these provisions do not 
apply.
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    \52\ Id. at 706(2)(D).
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    Finally, commenters argued that the OCC's proposal is arbitrary and 
capricious, including because it did not provide evidence of the 
problem it seeks to remedy. The OCC disagrees. The APA's arbitrary and 
capricious standard requires an agency to make rational and informed 
decisions based on the information before it.\53\ The primary problem 
the OCC seeks to address is the legal uncertainty resulting from the 
Madden decision, and the OCC has observed considerable evidence of this 
uncertainty.\54\ The OCC understands that its rule may not resolve all 
legal uncertainty for every loan transfer, as at least one opposing 
commenter noted. However, resolving every potential uncertainty is not 
a prerequisite for the OCC to take this narrowly tailored action to 
address a discrete source of uncertainty.\55\
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    \53\ Ass'n of Private Colls. & Univs. v. Duncan, 870 F. Supp. 2d 
133, 154 (D.D.C. 2012); see Motor Vehicle Mfrs. Ass'n of U.S., Inc. 
v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 52 (1983) (``The 
agency must explain the evidence which is available, and must offer 
a `rational connection between the facts found and the choice 
made.''' (quoting Burlington Truck Lines, Inc. v. United States, 371 
U.S. 156, 168 (1962))).
    \54\ For example, there are ongoing cases challenging the 
interest charged on securitized credit card receivables, with 
competing arguments regarding whether Madden applies in that 
circumstance. Similarly, the application of Madden to inter-bank 
loan transfers remains unresolved. Comments on the NPR from industry 
representatives also evidence the existence of legal uncertainty 
post-Madden.
    \55\ See Taylor v. Fed. Aviation Admin., 895 F.3d 56, 68 (2018); 
cf. Smiley, 517 U.S. at 743 (stating ``that there was good reason 
for the Comptroller to promulgate the new regulation, in order to 
eliminate uncertainty and confusion'').
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    Relying on this clear evidence of current legal uncertainty, the 
OCC has made a rational and informed decision to issue this rule.
    Furthermore, the OCC is not required to develop or adduce empirical 
or other data to support its conclusions about the importance of 
issuing this rule, nor must the OCC wait for the additional problems to 
materialize before taking action.\56\ Instead, the OCC may rely on its 
supervisory expertise to anticipate and address the problems that may 
arise from Madden and the legal uncertainty it has created.\57\ As 
described above, the OCC believes that its interpretation promotes 
safety and soundness and may facilitate responsible lending and 
efficient and effective bank operations.
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    \56\ Stilwell v. Office of Thrift Supervision, 569 F.3d 514, 519 
(D.C. Cir. 2009) (``The APA imposes no general obligation on 
agencies to produce empirical evidence. . . . Moreover, agencies 
can, of course, adopt prophylactic rules to prevent potential 
problems before they arise. . . . OTS based its proposed rule on its 
long experience of supervising mutual savings associations; its view 
found support in various comments submitted in response to the 
proposed rule.''); Chamber of Commerce of U.S. v. SEC, 412 F.3d 133, 
142 (D.C. Cir. 2005) (holding that the SEC did not have to conduct 
an empirical study in support of its rulemaking where it based its 
decision on ``its own and its staff's experience, the many comments 
received, and other evidence, in addition to the limited and 
conflicting empirical evidence'').
    \57\ FCC v. WNCN Listeners Guild, 450 U.S. 582, 595-96 (1981) 
(granting deference to the agency's ``forecast of the direction in 
which future public interest lies''); U.S. Telecom Ass'n v. FCC, 825 
F.3d 674, 732 (D.C. Cir. 2016) (``[A]n agency's predictive judgments 
about areas that are within the agency's field of discretion and 
expertise are entitled to particularly deferential review, as long 
as they are reasonable.'' (emphasis in original) (quoting EarthLink, 
Inc. v. FCC, 462 F.3d 1, 12 (D.C. Cir. 2006)).
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    Commenters also argued that the rule is arbitrary and capricious 
because it failed to consider the potential negative consequences that 
would, they argued, result from the rule, including the facilitation of 
predatory lending through ``rent-a-charter relationships.'' The OCC 
disagrees. The agency takes the risks created by predatory lending, 
including through third-party relationships, very seriously but, for 
the reasons discussed below, does not believe that that this rule will 
facilitate predatory lending through these relationships.

Predatory Lending

    Some commenters argued that the proposal would facilitate predatory 
lending by promoting rent-a-charter relationships that allow nonbanks 
to evade state law and that it would reverse the OCC's historical 
opposition to these relationships. These commenters asserted that the 
proposal would undermine or eliminate state interest caps, a vital tool 
that states use to protect residents against predatory lending.
    The OCC disagrees with these commenters' criticisms of this 
rulemaking. As made clear above, the OCC is issuing the rule to clarify 
its position with regard to the proper interpretation of sections 85 
and 1463(g)(1), which relates to a core element of banks' ability to 
engage in safe and sound banking: The ability to transfer loans. 
However, the OCC also notes, as many commenters did, that the agency 
has consistently opposed predatory lending, including through 
relationships between banks and third parties. Nothing in this 
rulemaking in any way alters the OCC's strong position on this issue, 
nor does it rescind or amend any related OCC issuances.
    The OCC also understands that appropriate third-party relationships 
play an important role in banks' operations and the economy, and the 
OCC has issued guidance on how banks can appropriately manage the risks 
associated with these relationships.\58\
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    \58\ See OCC Bulletin 2014-37, Consumer Debt Sales: Risk 
Management Guidance (Aug. 4, 2014); OCC Bulletin 2013-29, Third-
Party Relationships: Risk Management Guidance (Oct. 30, 2013); OCC 
Bulletin 2020-10, Third-Party Relationships: Frequently Asked 
Questions to Supplement OCC Bulletin 2013-29 (Mar. 5, 2020).
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    Because commenters are concerned that the rule would undermine 
state interest caps, it is also important to emphasize that sections 85 
and 1463(g) incorporate, rather than eliminate, these state caps. As 
noted above, these statutes require that a bank refer to, and comply 
with, the interest cap established by the laws of the state where the 
bank is located. Thus, disparities between the interest caps applicable 
to particular bank loans result primarily from differences in the state 
laws that impose these caps. This rule does not change that.

IV. Regulatory Text

    The OCC proposed to amend 12 CFR 7.4001 and 12 CFR 160.110 by 
adding a new paragraph, which would provide that interest on a loan 
that is permissible under sections 85 and 1463(g)(1), respectively, 
shall not be affected by the sale, assignment, or other transfer of the 
loan. As the proposal explained, this rule would expressly codify what 
the OCC and the banking industry have always believed and address the 
legal confusion about the impact of a transfer on the permissible 
interest. The proposal also noted that this rule would not address 
which entity is the true lender when a bank transfers a loan to a third 
party.
    The OCC received several comments on its proposed regulatory text. 
Commenters requested several clarifying changes, including 
recommendations to (1) specifically reference non-bank third

[[Page 33535]]

parties in the regulatory text; (2) ensure that the rule applies to 
transfers of partial interests in loans; and (3) clarify that the rule 
does not affect the applicability of other state law requirements, 
including licensing requirements. The OCC does not believe any changes 
to the regulatory text are necessary to address these recommendations 
because the OCC reads the regulatory text to be consistent with these 
recommendations.
    In addition, a commenter requested that the OCC clarify that the 
rule applies to all price terms of a loan. The OCC's rule applies to 
``interest,'' as that term is defined in 12 CFR 7.4001(a) and 12 CFR 
160.110(a).
    Several commenters also requested that the OCC address who is the 
true lender in its regulatory text. One commenter requested that the 
OCC specifically include regulatory text providing that the rule does 
not affect the determination of which entity is the true lender. The 
OCC reiterates that this rule does not address which entity is the true 
lender but does not believe it is necessary to specifically include a 
statement to this effect in the regulatory text. Another commenter 
requested that the OCC include a proviso providing that the rule only 
applies when the bank is the true lender, as determined by the law of 
the state where the borrower resides. Because the rule only applies to 
bank loans that are permissible under section 85 or 1463(g), the OCC 
does not believe that adding this proviso is necessary. Other 
commenters requested that the OCC establish a test for determining when 
the bank is the true lender. This would raise issues distinct from, and 
outside the scope of, this narrowly tailored rulemaking.
    Finally, several commenters argued that the OCC and the FDIC should 
coordinate and harmonize their respective regulatory texts, which will 
help minimize any differences in court decisions.\59\ The OCC's 
proposed regulatory text was narrowly tailored to address the specific 
legal uncertainty created by Madden, and the OCC believes this 
regulatory text best implements its interpretation of the statutory 
language in sections 85 and 1463(g)(1). Accordingly, the OCC adopts the 
rule as proposed. However, the OCC notes that it intends that its rule 
will function in the same way as the FDIC's proposed regulatory text 
would, which is consistent with interpreting sections 85 and 1831d in 
pari materia.\60\
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    \59\ On December 6, 2019, the FDIC proposed a similar rule based 
on section 1831d. Federal Interest Rate Authority, 84 FR 66845.
    \60\ This discussion refers specifically to 12 CFR 331.4(e) of 
the FDIC's proposed rule, which would address the impact a loan 
transfer has on permissible interest. The FDIC's proposed regulatory 
text also would address additional subsequent events, including 
changes in state law and changes in the relevant commercial paper 
rate. Although the OCC's rule does not address these circumstances, 
the OCC believes that the result would generally be the same for 
loans made by OCC-regulated banks.
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V. Regulatory Analyses

Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA), 44 U.S.C. 3501 et seq., the OCC may not conduct or 
sponsor, and respondents are not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (OMB) control number. The OCC has reviewed the final rule 
and determined that it would not introduce any new or revise any 
existing collection of information pursuant to the PRA. Therefore, no 
PRA submission will be made to OMB.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires an agency, in connection with a final rule, to prepare a Final 
Regulatory Flexibility Analysis describing the impact of the rule on 
small entities (defined by the Small Business Administration (SBA) for 
purposes of the RFA to include commercial banks and savings 
institutions with total assets of $600 million or less and trust 
companies with total assets of $41.5 million or less) or to certify 
that the final rule would not have a significant economic impact on a 
substantial number of small entities. The OCC currently supervises 
approximately 745 small entities.\61\ The ability to transfer a loan is 
important to all banks, so the OCC expects that all of these small 
entities would be impacted by this rule. However, the rule does not 
contain any new recordkeeping, reporting, or significant compliance 
requirements. Therefore, the OCC anticipates that costs, if any, will 
be de minimis and certifies that this rule will not have a significant 
economic impact on a substantial number of small entities. Accordingly, 
a Final Regulatory Flexibility Analysis is not required.
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    \61\ The OCC bases its estimate of the number of small entities 
on the SBA's size thresholds for commercial banks and savings 
institutions, and trust companies, which are $600 million and $41.5 
million, respectively. Consistent with the General Principles of 
Affiliation, 13 CFR 121.103(a), the OCC counts the assets of 
affiliated financial institutions when determining if the OCC should 
classify an OCC-supervised institution as a small entity. The OCC 
uses December 31, 2019, to determine size because a ``financial 
institution's assets are determined by averaging the assets reported 
on its four quarterly financial statements for the preceding year.'' 
See footnote 8 of the SBA's Table of Size Standards.
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Unfunded Mandates Reform Act

    Pursuant to the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 
1532, the OCC considers whether a final rule includes a Federal mandate 
that may result in the expenditure by State, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year (adjusted for inflation). The final 
rule does not impose new mandates. Therefore, the OCC concludes that 
implementation of the final rule would not result in an expenditure of 
$100 million (adjusted for inflation) or more annually by State, local, 
and tribal governments, or by the private sector.

Riegle Community Development and Regulatory Improvement Act

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (RCDRIA), 12 U.S.C. 4802(a), in 
determining the effective date and administrative compliance 
requirements for new regulations that impose additional reporting, 
disclosure, or other requirements on insured depository institutions, 
the OCC must consider, consistent with principles of safety and 
soundness and the public interest, any administrative burdens that such 
regulations would place on depository institutions, including small 
depository institutions, and customers of depository institutions, as 
well as the benefits of such regulations. In addition, section 302(b) 
of RCDRIA, 12 U.S.C. 4802(b), requires new regulations and amendments 
to regulations that impose additional reporting, disclosures, or other 
new requirements on insured depository institutions generally to take 
effect on the first day of a calendar quarter that begins on or after 
the date on which the regulations are published in final form. This 
rule imposes no additional reporting, disclosure, or other requirements 
on insured depository institutions, and therefore, neither section 
302(a) or 302(b) is applicable to this rule.

Congressional Review Act

    For purposes of Congressional Review Act (CRA), 5 U.S.C. 801 et 
seq., the Office of Information and Regulatory Affairs (OIRA) of the 
OMB determines whether a final rule is a ``major rule,'' as that term 
is defined at 5 U.S.C. 804(2). OIRA has determined that this rule is 
not a ``major rule.''

[[Page 33536]]

    As required by the CRA, the OCC will submit the final rule and 
other appropriate reports to Congress and the Government Accountability 
Office for review.

Administrative Procedure Act

    The APA, 5 U.S.C. 551 et seq., generally requires that a final rule 
be published in the Federal Register not less than 30 days before its 
effective date. This final rule will be effective 60 days after 
publication in the Federal Register, which meets the APA's effective 
date requirement.

List of Subjects

12 CFR Part 7

    National banks, Interest, Usury.

12 CFR Part 160

    Savings associations, Interest, Usury.

Office of the Comptroller of the Currency

    For the reasons set out in the preamble, the OCC amends 12 CFR 
parts 7 and 160 as follows.

PART 7--ACTIVITIES AND OPERATIONS

0
1. The authority citation for part 7 continues to read as follows:

    Authority:  12 U.S.C. 1 et seq., 25b, 29, 71, 71a, 92, 92a, 93, 
93a, 95(b)(1), 371, 371d, 481, 484, 1463, 1464, 1465, 1818, 1828(m) 
and 5412(b)(2)(B).

Subpart D--Preemption

0
2. Section 7.4001 is amended by adding paragraph (e) to read as 
follows:


Sec.  7.4001  Charging interest by national banks at rates permitted 
competing institutions; charging interest to corporate borrowers.

* * * * *
    (e) Transferred loans. Interest on a loan that is permissible under 
12 U.S.C. 85 shall not be affected by the sale, assignment, or other 
transfer of the loan.

PART 160--LENDING AND INVESTMENT

0
3. The authority citation for part 160 continues to read as follows:

    Authority:  12 U.S.C. 1462a, 1463, 1464, 1467a, 1701j-3, 1828, 
3803, 3806, 5412(b)(2)(B); 42 U.S.C. 4106.


0
4. Section 160.110 is amended by adding paragraph (d) to read as 
follows:


Sec.  160.110  Most favored lender usury preemption for all savings 
associations.

* * * * *
    (d) Transferred loans. Interest on a loan that is permissible under 
12 U.S.C. 1463(g)(1) shall not be affected by the sale, assignment, or 
other transfer of the loan.

Brian P. Brooks,
Acting Comptroller of the Currency.
[FR Doc. 2020-11963 Filed 6-1-20; 8:45 am]
BILLING CODE 4810-33-P