The Attorneys General of California, Illinois, and New York have filed a motion for summary judgment in their lawsuit filed against the Office of the Comptroller of the Currency (OCC) to enjoin the OCC’s final rule purporting to override the Second Circuit’s Madden decision as to national banks and federal savings associations.  The OCC must file its opposition to the summary judgment motion and any cross-motion for summary judgment by January 14, 2021.  All briefing is to be completed by February 25, 2021 and a hearing on the motions is scheduled for March 14, 2021.

The AGs’ complaint alleges that the OCC rule violates the Administrative Procedure Act because it is “arbitrary, capricious, an abuse of discretion, or otherwise contrary to law,” “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right,” and taken “without observance of procedure required by law.”  The OCC filed an answer to the complaint on November 12.

The AGs’ central arguments in support of their summary judgment motion are:

  • The OCC’s rule conflicts with the plain language of Section 85 and 12 U.S.C. §1463, which apply only to interest that a national bank or federal savings association may charge.
  • The OCC lacks authority to issue the rule because the rule governs only the conduct of non-banks, i.e. the interest rate a non-bank can charge after a bank transfers a loan to it.
  • The OCC’s constructions of Section 85 and 12 U.S.C. §1463 are not entitled to Chevron deference because “they lack thorough consideration and support, proceed from invalid reasoning, and…are inconsistent with prior OCC positions without explanation.”
  • The OCC failed to comply with the Dodd-Frank Act’s preemption requirements which apply because the rule’s effect and purpose is to preempt otherwise applicable state interest rate caps.  Among such requirements is application of the Barnett Bank standard that requires a finding that the preempted state law significantly interferes with a national bank’s exercise of its powers.
  • The rule is without support in the record because even if the OCC applied Barnett Bank, it made no findings that could support the rule under that standard.  The OCC has merely speculated that Madden has caused uncertainty in secondary credit markets and, in any event, application of state rate caps to non-banks does not significantly interfere with national banks’ ability to make and sell loans.
  • The OCC failed to consider the rule’s facilitation of rent-a-bank schemes and that the rule creates a regulatory vacuum by placing non-bank loan buyers outside any meaningful regulation.

The AGs in the lawsuit against the OCC, joined by the AGs for the District of Columbia, Massachusetts, Minnesota, New Jersey, and North Carolina, filed a second lawsuit against the FDIC to enjoin its similar “Madden-fix” rule as to state banks.  The second lawsuit was filed in the same California federal district court as the lawsuit against the OCC and both cases will be heard by Judge Jeffrey S. White who was appointed to the federal bench in 2002 by President George W. Bush.  Judge White entered an order approving a stipulation between the AGs and the FDIC that requires the FDIC to file an answer to the complaint by January 14, 2020 and for the AGs and the FDIC to file cross-motions for summary judgment by, respectively, February 25 and March 25, 2021.  All briefing must be completed by May 6, 2021 and a hearing on the cross-motions is scheduled for June 4, 2021.

It is unclear what impact the change to a Biden Administration will have on both Madden-fix rules and the two lawsuits.  In a letter sent to President-elect Biden earlier this month, House Financial Services Committee Chairman Waters has called upon the Biden Administration to rescind both rules.  President-Biden is expected to appoint a new Comptroller of the Currency.  While FDIC Chairman McWilliams, appointed by President Trump, has indicated that she plans to remain in her position as Chairman until her five-year term ends in 2023, Democrats will hold a majority of FDIC seats.  Accordingly, there is a possibility that one or both agencies will revisit their Madden-fix rules and decide to no longer defend their rules in the pending lawsuits.