Comments on the Office of the Comptroller of the Currency’s (OCC) proposed “Madden fix” regulation are in.
There were 61 comments filed by the usual suspects: trade and consumer groups, state agencies, state and federal officeholders, political associations, individual companies, academics, and individuals. As expected, industry was generally supportive while states and consumer groups were opposed.
What is notable about the comments are the arguments made by consumer groups, state AGs, and state regulatory agencies such as the New York Department of Financial Services. In addition to repeating their now-familiar positions on why the Second Circuit’s 2015 Madden decision is good for consumers, the comments filed by these groups also preview the claims they will make in litigation challenging the regulation if it is finally adopted. These claims include, among others, the following:
- The OCC lacks authority to issue the regulation because it is seeking to regulate conduct of nonbanks (i.e., the interest they may charge), and purportedly conflicts with express language in the National Bank Act.
- The OCC failed to comply with applicable procedural requirements under the Administrative Procedure Act and the Dodd-Frank Act, including requirements to consult with other agencies.
- The regulation is arbitrary and capricious on various grounds.
For those interested in further detail, we recommend reading comments submitted by a group of state attorneys general and a collection of consumer groups. The deadline for comments on the FDIC’s parallel Madden fix proposal was February 4, 2020.
Why It Matters
The Madden fix regulations proposed by the OCC and FDIC, if finally adopted, should help reduce uncertainty regarding the enforceability of bank loans transferred to nonbanks. While the objections focus very much on high-rate bank partnership lending, the fact is that Madden’s implications are much broader, impacting bank loss mitigation activities such as debt sales as well as secondary markets which drive credit availability by allowing banks to maintain liquidity. We expect the OCC and FDIC ultimately to adopt final regulations to address these serious problems, perhaps with some modifications. However, the comment process confirms that states and others are hell-bent on continuing the fight in court.