By a vote of 245-171, the House passed H.R. 3299, the “Madden fix” bill (whose official title is the “Protecting Consumers’ Access to Credit Act of 2017.”) In Madden, the Second Circuit ruled that a nonbank that purchases loans from a national bank could not charge the same rate of interest on the loan that Section 85 of the National Bank Act allows the national bank to charge.
The bill would add the following language to Section 85 of the National Bank Act: “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.”
The bill would 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 and state savings associations, federal credit unions, and state-chartered banks. (A Senate bill with identical language was introduced in July 2017 by Democratic Senator Mark Warner.)
The House passed the bill despite strong Democratic opposition, with only 16 Democrats voting for the bill and 170 voting against. As a result, the bill is expected to face an uphill battle in the Senate even though it can be passed with only 60 votes.
While adoption of a “Madden fix” would eliminate the uncertainties created by the Second Circuit’s Madden decision, it would not address a second source of uncertainty for some loans that are made by banks with substantial marketing and servicing assistance from nonbank third parties and then sold shortly after origination. These loans have been challenged by regulators and others on the theory that the nonbank marketing and servicing agent is the “true lender,” and therefore the loan is subject to state licensing and usury laws. In November 2017, a bipartisan group of five House members introduced a bill (H.R. 4439) that is intended to address the “true lender” issue.