This past Thursday, by a  vote of 31-21, the House Appropriations Committee approved the fiscal year 2018 Financial Services and General Government Appropriations bill.  In addition to multiple provisions to reform the CFPB, the bill contains a provision intended to override the Second Circuit’s opinion in Madden v. Midland Funding.  In Madden, the court held that a non-bank transferee of a loan from a national bank loses the ability to charge the same interest rate that the national bank charged on the loan under Section 85 of the National Bank Act.

The CFPB reforms are:

  • Bringing the CFPB into the regular appropriations process (Section 926)
  • Eliminating the CFPB’s supervisory authority (Section 927)
  • Removing the CFPB’s “rulemaking, enforcement, or other authority with respect to payday loans, vehicle title loans or other similar loans” (Section 928)
  • Removing the CFPB’s UDAAP authority (Section 929)
  • Repealing the CFPB’s authority to restrict arbitration (Section 930)

Section 925 of the Appropriations bill, which would override the Second Circuit’s Madden opinion, is identical to a provision in the CHOICE Act passed by the House.  The bill would add the following language to Section 85: “A loan that is valid when made as to its maximum rate of interest in accordance with this section shall remain valid with respect to such rate regardless of whether the loan is subsequently sold, assigned, or otherwise transferred to a third party, and may be enforced by such third party notwithstanding any State law to the contrary.”  Like the CHOICE Act, the Appropriations Bill would also add the same language (with the word “section” changed to “subsection” when appropriate) to the provisions in the Home Owners Loan Act, the Federal Credit Union Act, and the Federal Deposit Insurance Act that provide rate exportation authority to, respectively, federal savings associations, federal credit unions, and state-chartered banks.  (While these statutory amendments would be welcome, Alan Kaplinsky pointed out in an article for American Banker’s BankThink that the OCC could more simply and quickly accomplish the same objective for national banks by issuing a regulation.)