The plaintiffs in Cohen v. Capital One Funding, LLC and Petersen v. Chase Card Funding, LLC have filed appeals with the Second Circuit from the decisions of two New York federal district courts that held the National Bank Act (NBA) preempts their claims that the interest charged on credit card receivables assigned to affiliated securitization trusts violated New York usury law.

Both cases involve the securitization of credit card receivables generated on credit card accounts issued by a national bank.  The plaintiffs did not name the national bank credit card issuers as defendants and instead sued various non-bank entities involved in the securitization process (Securitization Defendants) and the trustee of the securitization trust.  Relying on the Second Circuit’s Madden decision, the plaintiffs claimed that NBA preemption only applied directly to the national bank issuers and, accordingly, the Securitization Defendants could not rely on the NBA to preempt the application of New York usury law to the securitized credit card receivables.  In Madden, the Second Circuit held that NBA preemption of New York usury law did not apply to charged-off credit card receivables sold by a national bank to a non-bank.

In both cases, the Securitization Defendants filed a motion to dismiss, asserting that the plaintiff’s usury claims were preempted by the NBA and, in both cases, the courts agreed with the defendants and granted the motions to dismiss.  The two courts concluded that the application of New York usury law would significantly interfere with the ability of the national bank card issuers to sell the receivables generated by their credit card accounts.   Neither court relied on the OCC’s “Madden fix” final rule for its ruling.

Given that the two cases have similar facts and raise the same preemption issue, we would expect the Second Circuit to consolidate the appeals.  We will follow the cases in the Second Circuit and provide updates on important developments.