- The platform company does not need state lender licenses.
- By virtue of the bank partner enjoying interest rate exportation authority, interest may be charged uniformly nationwide on program loans at rates that may not be permitted for non-bank lenders.
Establishing a bank partnership requires careful analysis and expertise. Certainly, the bank is identified as the lender on the note or loan agreement and, therefore, is the lender by contract with the borrower. Approvals, disclosures and other significant loan-related materials should identify the bank as the lender as well. Because the bank must also be the lender in fact, it is important to go beyond the loan documents and ensure the bank maintains the level of activity, authority over the loan program and economic interest in the loans that one reasonably would expect of a lender.
If a court or regulator concludes that the platform company is the true lender, the consequences can be serious. The company can come under scrutiny for operating without a lender license, making usurious loans, or acting in an unfair or deceptive manner. Penalties could include a cease and desist order until a license is obtained, disgorgement of the interest differential between what the bank assessed and what the platform company could have charged in its own right, loans becoming void or uncollectible, and other fines or civil damages.
Not all authorities view the “true lender” issue the same. However, regulator opinion letters, enforcement actions and case law in various jurisdictions have provided the industry guidance on best approaches to follow in structuring bank partnerships. Three general lines of true lender inquiry have emerged from these authorities, asking:
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Does the bank perform or control the non-ministerial activities normally performed by a lender?[1]
- Is the bank the real source of funding?[2]
- Does the bank have an economic interest in the loans and origination-related risk?[3]
These questions lead to a number of specific factors to consider in forming a bank partnership to ensure that the bank is the true lender. Below is a partial list of examples of...
