The U.S. District Court of the Northern District of California granted summary judgment in favor of the OCC and FDIC, respectively (the "agencies"), affirming their rulemaking authority and the agencies' "valid-when-made" rules.
The Court affirmed the agencies' interpretation of federal banking law to allow for the "valid-when-made" doctrine, which posits that the interest on a loan permissible before transfer continues to be permissible afterward. The Court rulings also clarified that "a loan's interest rate remains legally intact if the loan is sold." By so holding, the Court affirmed the "valid-when-made" doctrine, and satisfied due deference to agency authority under Chevron U.S.A., Inc. v. Natural Resources Defense, Inc. The agencies had issued the rules in response to the Madden v. Midland Funding, LLC decision from the U.S. Court of Appeals for the Second Circuit, which cast doubt on the interest rate allowed on loans sold by national banks and FDIC-insured state banks.
Michael Bright, CEO of the the Structured Finance Association ("SFA"), which filed an amicus brief in support of the Court's action, stated: "[t]his is the best outcome not only for financial institutions but also more importantly for consumers who would ultimately bear the brunt of continued threats to the secondary market."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
