OCC Rules State Lending Laws Not Preempted When National Bank Serves as Loan Pool Trustee

The OCC issued an interpretive letter ("Letter 1016") holding that federal law does not preempt state lending laws simply because the loans were purchased by national banks acting as trustees in connection with the issuance of mortgage-backed securities. A nonbank lender made the loans and sold them to the securitization trusts. When the national banks, acting as trustees, tried to foreclose on the loans the borrowers raised the New Jersey Consumer Fraud Act as a defense. The national banks asserted that the New Jersey law was preempted because it interfered with their ability to purchase loans. Letter 1016 states, however, that, in substance, the investors in the pools, rather than the national banks, are purchasing the loans. As a result, Letter 1016 found the OCC lending preemption rules do not apply in these circumstances. Moreover, Letter 1016 also did not find that the New Jersey law interferes with the banks’ ability to act as trustees. Accordingly, "federal law does not