FDIC codifies 'valid when made' doctrine

The FDIC issued an ICBA-supported rule codifying agency guidance that the valid interest rate for a loan is determined when the loan is made and is unaffected by a subsequent sale or reassignment to a third party.

In a comment letter earlier this year, ICBA said it strongly supports the rule and agrees that bank authority to make loans at particular rates necessarily includes the power to assign the loans at those rates. The OCC proposed the rule alongside the FDIC and is expected to finalize it as well.

The rule reaffirms the longstanding "valid when made" doctrine following the Madden v. Midland Funding case. In that case, the Second Circuit ruled that when a loan has been sold or assigned to another party, state usury laws where the purchaser or assignee of the debt reside apply to the transaction.

ICBA opposed the court decision and supported a rehearing. The Supreme Court declined to hear the case, leading to unsuccessful congressional efforts to overturn the ruling.