As anticipated, on June 5, 2023, Colorado Governor Jared Polis signed into law Colorado HB23-1229, which will exclude consumer loans made in Colorado from the provisions of Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDA) (codified at 12 U.S.C. 1813d), a federal law enacted to create competitive equality with respect to usury laws between state-chartered banks and national banks.
As discussed in detail in our earlier blogs published in May and April, the effects of this DIDA opt-out are far from clear. The only other jurisdictions where DIDA opt-outs are in place are Iowa and Puerto Rico, both of which date back decades. Colorado’s Uniform Consumer Credit Code (UCCC) Administrator and Attorney General may attempt to take enforcement positions (like their Iowa counterparts) interpreting the DIDA opt-out to prevent out-of-state, state-chartered banks from making consumer loans to Colorado residents at rates permitted by the banks’ home states but higher than allowed under Colorado’s UCCC. In our view, the new law will apply to a loan made by a state bank chartered in another state only if a court were to conclude that based on certain specific facts, the loan was made in Colorado, rather than from and in the state where the lending bank is located. (As discussed in detail in our April blog, we believe that federal standards determine where a loan is made.) However, the DIDA opt-out will put Colorado-chartered banks at a competitive disadvantage by eliminating Colorado-chartered banks’ ability to “export” Colorado rates on consumer loans made to borrowers residing in other states. The DIDA opt-out does not affect loans made by national banks or federal savings associations, whose exportation rights derive from the National Bank Act and the Home Owners’ Loan Act, respectively.
As also discussed in our May blog, the law would except “General-Purpose Credit Cards”, wherever issued, from the finance charge and fee limitations of the UCCC, if the cards meet the newly-added definition of “General-Purpose Credit Card,” including among other requirements an ambiguously worded 15% cap on fees. Hopefully, before the effective date of the DIDA opt-out and the General-Purpose Credit Card carve-out, this definition will be clarified so that it may be understood and acted upon by credit card issuers if they want to issue to Colorado residents General-Purpose Credit Cards that qualify for the carve-out.
Ironically, by virtue of the DIDA opt-out implemented by the new law, General-Purpose Credit Cards issued by a Colorado-chartered bank would be subject to the laws of each state where the borrowers reside, meaning Colorado-chartered banks would not benefit from the General Purpose Credit Card carve-out from the UCCC, because such banks would not be able to “export” finance charges at rates no longer restricted by the UCCC cap with respect to any cards issued to out-of-state borrowers. In contrast, out-of-state, state banks could issue General-Purpose Credit Cards that meet the terms of the carve-out to Colorado borrowers without being subject to the Colorado UCCC limits on finance charges and fees (other than the 15% fee limit in the new General Purpose Credit Card definition).
The DIDA opt-out and related provisions of the new Colorado law will be effective July 1, 2024.
Changes to certain permitted charges and other requirements relating to small dollar loans, also included in the new law, will take effect January 1, 2024.
Consumer lenders that make, and fintechs that facilitate, loans to Colorado residents would be well advised to consult with their legal counsel regarding the Colorado DIDA opt-out and General Purpose Credit Card carve-out. We will continue to follow developments emerging from this new law.