Madden Issue Remains Despite OCC and FDIC Valid When Made Rule

摘要

The valid when made doctrine has served as a longstanding common law principle that the U.S. Supreme Court has referred to as a "cardinal rule in the doctrine of usury."1 The basis of the valid when made doctrine is that if a loan is not usurious when originated, it is not subsequently rendered usurious when assigned. In 2015, the Second Circuit decision Madden v. Midland Funding created legal uncertainty regarding the continued prominence of the valid when made doctrine. While there was hope the court would eventually set things straight, this did not happen. Bills were introduced to codify the legal principal long understood to exist, but these bills have not been enacted. What did happen was the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Commission (FDIC) enacted rules to codify the valid when made doctrine for the institutions they regulate. These rules provided relief for supervised depository institutions, but nonbank lenders have no such direct legal relief. Despite the OCC and FDIC rules, the Madden issue still hangs out there for many nonbank lenders and needs to be addressed as the uncertainty created by Madden continues to hinder the operation of credit markets and impede financial innovation.