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OCC Issues Final Rule to Fix Madden, and Clarify the Validity of the ‘Valid When Made’ Doctrine

OCCThe Office of the Comptroller of the Currency (OCC) recently issued its final rule clarifying the “Permissible Interest on Loans that are Sold, Assigned, or Otherwise Transferred”. 

The OCC adopted the rule as proposed.

A copy of the Federal Register Notice is available at:  Link to Notice.

Effective Date

The OCC states that its final rule “applies to all national banks and state and federal savings associations and will take effect 60 days after publication in the Federal Register,” which is expected imminently.

Parallel FDIC Rulemaking

As we previously reported, in late 2019, the OCC and the Federal Deposit Insurance Corporation (FDIC) both issued proposed rules to “fix” the potential problems arising from the ruling in Madden v. Midland Funding, LLC, 786 F.3d 246 (2nd Cir. 2015), which called into question the “valid when made” doctrine.

The OCC notes that 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.” On this issue, the OCC states its position that “the result would generally be the same for loans made by OCC-regulated banks.”


As you may recall, federal law in part allows national banks and federal savings associations to charge interest at the “most favored lender” rate — i.e., the maximum rate permitted to any state-chartered or licensed lending institution in the state where the bank is located — and authorizes national banks and federal savings associations to make contracts and engage in the business of banking, including making, purchasing, and selling loans.

FDIC-insured state banks generally have parallel rights under other federal law.

However, as we reported in our prior update, the U.S. Court of Appeals for the Second Circuit in Madden essentially held that loans that are completely legal when made by a national bank subsequently become illegal if the national bank sells or assigns them to a non-national bank purchaser or assignee.

According to the Second Circuit, the federal banking laws only preempt state usury laws as long as the loan remains in the hands of a national bank, but not if the loan is subsequently sold or assigned to an entity that is not a national bank or a person collecting interest for a national bank.

This meant that the loan purchaser defendant in the Madden case, which was not a national bank or a person collecting interest for a national bank, violated the federal Fair Debt Collection Practices Act by charging illegal interest on the loans it purchased from national banks.

The Supreme Court of the United States subsequently denied the defendant’s petition for a writ of certiorari in June of 2016. This essentially allowed the Madden ruling to stay in effect.

The OCC states that its final rule “clarifies that when a bank transfers a loan, the interest permissible before the transfer continues to be permissible after the transfer.”

Importantly, in issuing its final rule, the OCC expressly considered — and rejected — several issues raised by various commenters, including:

  • “[T]he OCC does not have the authority to issue this regulation”;
  • “[T]he OCC’s proposal was subject to, but did not comply with, the substantive and procedural provisions in 12 U.S.C. 25b”; 
  • There is no need for the rule, as there is “no evidence that legal uncertainty” under Madden and similar rulings “has had negative effects on banks or markets”;
  • “[T]he OCC’s proposal did not comply with the Administrative Procedure Act (APA)”;
  • The OCC’s rule “would facilitate predatory lending by promoting rent-a-charter relationships and allowing nonbanks to evade otherwise applicable state law”.

Photo: Andriy Blokhin –

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Ralph Wutscher's practice focuses primarily on representing consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. He represents the lending and financial services industry as a litigator, and as regulatory compliance counsel. For more information, see