On behalf of the American Bankers Association (ABA) and the Consumer Bankers Association (CBA), Ballard Spahr has submitted an amicus brief in NAIB et al. v. Weiser et al., the lawsuit challenging Colorado’s opt-out legislation  The amicus brief was filed in support of the plaintiffs’ motion for preliminary injunction.

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 Marquette, 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.

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.  At issue in the litigation is where a loan is made in the case of loans to Colorado residents by insured state banks located in other states.  The plaintiff industry groups contend that, for purposes of Section 525, loans to Colorado residents by insured state banks located in other states should be deemed “made in” the bank’s home state or the state where key lending functions occur.  In its brief, Colorado argues that, for purposes of Section 525, a loan is “made in” the borrower’s state.  The FDIC, in an amicus brief in support of Colorado, argues that, for purposes of Section 525, a loan is “made in” both the state where the borrower is located and also the state where the lender is located.

In their amicus brief, the ABA and CBA make the following principal arguments in support of the plaintiffs’ position:

• The legislative history of Sections 525 demonstrates that the opt-out right it conferred was intended simply to allow states to undo parity with respect to loans made in their own states by their own state-chartered depository institutions to their own citizens by reimposing their own state usury ceilings on such loans.  Nothing in the legislative history indicates that Congress intended Section 525 to undo parity between national banks and state-chartered banks located outside the opt-out state that make interstate loans from states where they are located at rates allowed by those states’ laws to borrowers in the opt-out state.
• Congress contemplated that, under Section 525, a loan is “made” in the state where lending functions are performed.  Just three months before enacting Section 525, Congress amended the National Housing Act by adding Section 529 which allowed states to countermand preemption with respect to loans that are either “made in or executed in” the state.  Thus, Congress clearly knew how to be explicit on this issue, and its choice three months later to use only the lender-centric word “made” in Section 525 without also adding the more bilateral term “executed” is highly significant.
• Colorado’s proposed framework for determining where a loan is “made” for purposes of a Section 525 opt-out is improperly based on contract formation principles rather than loan-making activities. The Dormant Commerce Clause cases that Colorado and the FDIC rely on were decided many years after the enactment of Section 525. They may support the notion that the borrower’s state has interests in a finance company loan transaction that are Constitutionally sufficient to warrant their authority to regulate that transaction.  However, these cases shed no light on the Congressional understanding of where a loan is made for purposes of Section 525, and they do not stand for the proposition that bank loans are “made in” the borrower’s state for purposes of Section 525.
• No deference should be given to the FDIC’s amicus brief with respect to the issue of where a loan is made for purposes of Section 525.  In its amicus brief, the FDIC does not point to any prior FDIC regulation, rule, or opinion letter where it has adopted the position that, for purposes of Section 525, loan transactions between parties in different states are made in the state where the borrower is located and in the state where the lender is located. Precedent of the U.S. Supreme Court, the Tenth Circuit Court of Appeals, and other appellate courts have repeatedly held that no deference should be given to positions taken by agencies in litigation that are unsupported by regulations, ruling, or administrative practice. In the 44 years since DIDMCA was enacted, the FDIC has not adopted a regulation setting forth its view as to where a loan is made for purposes of Section 525.  Giving deference to the FDIC’s newly-announced views on this issue in its amicus brief would impermissibly allow the FDIC to create a de facto new regulation.