FDIC Issues Rule to Codify Permissible Interest on Transferred Loans — 2020-06-25

The Federal Deposit Insurance Corporation (FDIC) today issued a final regulation to codify the agency’s longstanding guidance that the valid interest rate for a loan is determined when the loan is made, and will not be affected by a subsequent sale, assignment, or other transfer of the loan. The rule reaffirms the longstanding ‘valid when made’ doctrine, a nearly 200-year-old principle in contract law. In 1980, Congress enacted the Depository Institutions Deregulation and Monetary Control Act, which created Section 27 of the Federal Deposit Insurance Act authorizing state banks to charge interest at a rate that is permissible in the state where the bank is located. The FDIC has interpreted and applied this law to state banks through an opinion of the General Counsel issued in 1998, but until today the agency did not enact corresponding regulations.