Bank partnership lending programs have existed for years and have played a significant role in the growth of the online lending industry and the fintech sector. In a bank partnership lending program, a non-bank partner markets loans and processes applications on behalf of a bank. The bank will then originate the loans pursuant to its rate exportation authority. Typically, the bank holds the loan for a limited time and then sells the loan, or the majority of the receivables from it, to the partner while retaining a participation interest. Opponents of bank partnerships argue that the non-bank entity should be considered the “true lender” in these transactions. A true lender claim is based on allegations that the bank is not actively engaged in the lending program and does not receive the benefits or take the risks of a true lender. If a true lender challenge is successful, the partner could face significant penalties for usury and unlicensed lending.
This survey reviews key developments in true lender challenges in the past year.
Originally published in The Business Lawyer, Spring 2019, Volume 74, Issue 2.
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