As expected, the Colorado Attorney General and Colorado Uniform Consumer Credit Code Administrator filed their responsive brief in opposition to the plaintiffs’ motion for preliminary injunction filed earlier this month in federal district court in Colorado.  As explained in our earlier blog, in NAIB et al. v. Weiser et al., three financial services industry trade groups filed a lawsuit asking the court to strike down recent Colorado legislation that opts out of a federal law that grants FDIC-insured state banks (as well as insured thrifts and credit unions) the same interest rate authority enjoyed by their national bank counterparts.

In an unexpected turn of events, the FDIC filed an amicus brief siding with the State of Colorado’s position.

The law at issue is the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). Section 521 of DIDMCA applies to insured state banks and tracks Section 85 of the National Bank Act, the statute establishing interest rate authority for national banks, generally allowing banks to charge interest at the rate allowed in the state of their location or a floating rate based on a prevailing Federal Reserve discount rate, whichever is higher.  In a unanimous decision issued just 15 months prior to DIDMCA’s enactment, the U.S. Supreme Court held that Section 85 allows national banks to “export” the rate authorized in states where they are located on loans made to borrowers in other states.  Subsequent case law has construed DIDMCA Section 521 in pari materia with Section 85, thereby granting insured state banks the same rate exportation authority as national banks.  However, Section 525 of DIDMCA allows states to enact laws opting out of Section 521’s preemptive effect with respect to loans “made in” the enacting state.  The ultimate issue before the federal court in Colorado is, therefore, where a loan is made in the case of loans to Colorado residents by insured state banks located in other states.

The briefs filed by the state of Colorado and FDIC counter the industry groups’ argument that these loans should be deemed made in the bank’s home state or the state where key lending functions occur, rather than in the borrower’s state.  In particular, the briefs are dismissive of the plaintiffs’ key lending functions approach, arguing that it ignores the ordinary meaning of “made in” and improperly conflates existing FDIC interpretations of where a bank is located with where a loan is made.  The briefs also refute the plaintiffs’ dormant Commerce Clause and Supremacy Clause arguments.

Finally, the state’s brief also argues that the plaintiffs lack standing and the case is not yet ripe for adjudication.

Both briefs fail to fully analyze Congress’ purpose in enacting interest rate preemption and related opt-out authority under DIDMCA.  Further, contrary to assertions set forth in its brief, the FDIC appears to be suddenly renouncing the reasoned position it has publicly taken for more than four decades.  We will provide a more detailed discussion of the arguments made by the Colorado defendants and FDIC (and the authorities they ignored) in the coming days and continue to monitor and report developments in this case as they arise.

A hearing on the motion for preliminary injunction is set for May 16.

On June 6, 2024, from 1:00 p.m. to 2:30 p.m. ET, we will be holding a webinar “Interest Rate Exportation Under Attack,” in which we will be covering this topic in great detail.  Click here to register.