Bank Regulators Clarify The "Valid-When-Made" Doctrine

On November 18, 2019, the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC") issued proposed rules ("Proposed Rules") that reaffirm the "valid-when-made" doctrine in response to ambiguities raised by the Second Circuit Court of Appeals' decision in Madden v. Midland Funding, LLC, 786 F.3d 246 (2nd Cir. 2015). Comments on the Proposed Rules will be accepted until 60 days following the Proposed Rules' publication in the Federal Register.

The National Bank Act and Federal Deposit Insurance Act provide that a bank is permitted to charge the maximum interest rate permissible in the state where it is located. The "valid-when-made" doctrine is a long-standing common law doctrine providing that bank loans carrying interest rates that are valid when made under applicable federal law remain valid with respect to that rate, regardless of whether a bank has subsequently sold or assigned the loan to a third party. See, Nichol