The parties in Petersen v. Chase Card Funding, LLC and Cohen v. Capital One Funding, LLC, have filed Stipulations agreeing to the withdrawal with prejudice of the plaintiffs’ appeals to the Second Circuit from the district courts’ decisions holding that 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 involved 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 trustees of the securitization trusts. 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 plaintiffs’ 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.
While we were pleased (but not surprised) by the district courts’ decisions, we were mildly disappointed that neither court relied on the OCC’s “Madden fix” final rule for its ruling. Had the courts done so, the decisions would have had even broader precedential value for the industry.