The Attorney Generals of the six states and District of Columbia who filed a lawsuit against the FDIC to set aside its “Madden-fix” rule have filed a motion for summary judgment in the case.
The lawsuit is pending before the same California federal district court judge (Judge Jeffrey S. White) who is hearing the lawsuit filed by three state AGs to set aside the OCC’s similar Madden-fix rule. Cross-motions for summary judgment have been filed in that case and oral argument on the motions is scheduled for May 7, 2021.
In their summary judgment motion, the AGs argue that the FDIC rule violates the Administrative Procedure Act because it exceeds the FDIC’s authority and impermissibly preempts state law and is arbitrary and capricious. Their central arguments in support of this position are:
- The rule exceeds the FDIC’s authority because the plain language of the governing federal statute (12 U.S.C. 1831d) applies only to interest that an FDIC-insured state bank may charge. There is no statutory ambiguity as to when the validity of a loan’s interest rate should be assessed because, contrary to the FDIC’s suggestion, Section 1831d does not apply to certain loans but instead applies to certain entities, namely FDIC-insured banks. Section 1831d gives such banks the privilege of charging interest in excess of otherwise applicable state law. Once such loans are no longer held by an FDIC-insured bank, that preemption ceases. The rule also exceeds the FDIC’s authority because the FDIC can only regulate FDIC-insured banks and the rule regulates non-banks by granting them the power to enforce interest rate terms that violate state law.
- The rule impermissibly preempts state law by extending the preemption of state interest rate limits to buyers of loans originated by FDIC-insured banks. Even if Section 1831d were ambiguous, the FDIC’s interpretation fails to overcome the presumption against preemption.
- The rule is arbitrary and capricious because the FDIC failed to give sufficient consideration to evidence that the rule will likely facilitate rent-a-bank schemes and to meaningfully address the true lender doctrine’s applicability to loan sales potentially covered by the rule. More specifically, the issues the FDIC failed to consider include how the rule’s encouragement of rent-a-bank schemes will increase the number and complexity of true lender disputes and how many purported loan sales would likely fall outside the rule’s scope due to true lender issues. The FDIC’s basis for the rule lacks evidentiary support because the FDIC has not shown that Madden has caused any significant effects on credit availability or securitization markets.
Under the modified scheduling order entered by the court:
- The FDIC must file its opposition to the AGs’ motion and any cross-motion for summary judgment by May 20, 2021.
- The AGs must file their reply and opposition to a cross-motion for summary judgment filed by the FDIC by June 17, 2021.
- The FDIC must file its reply by July 15, 2021.
- Oral argument on summary judgment motions is scheduled for August 6, 2021.