Bank Regulators' Proposals Won't Erase Madden Uncertainty

Law360 (December 4, 2019, 2:36 PM EST) -- The Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency have each issued a proposed rulemaking to clarify that when a bank[1] sells, assigns or otherwise transfers a loan, interest permissible prior to the transfer continues to be permissible following the transfer.

The proposed rules are intended to address — at least partially — the uncertainty created by the U.S. Court of Appeals for the Second Circuit's 2015 decision in Madden v. Midland Funding LLC, which called into question longstanding “valid-when-made” and “stand-in-the-shoes” principles relied upon by loan originators, securitizers and investors.

The proposed rules, however, may not...

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