Oregon may become the latest state attempting to stop out-of-state banks from “exporting” home-state interest rates on loans made to Oregon consumers. Like similar legislation adopted by Colorado in 2023, House Bill 2561 explicitly provides that the state does not want certain provisions of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) to apply to loans made in Oregon.

The Oregon House Commerce and Consumer Protection committee approved the legislation last week.

Like Section 85 of the National Bank Act (Section 85), DIDMCA Section 521 (Section 521) allows insured state banks to charge interest at the highest rate permitted in the states where they are located. Because of the similarity in their text and Congress’s expressly stated purpose, courts have consistently interpreted Section 85 and Section 521in pari materia, that is, they have interpreted them uniformly because they address the same subject matter. In particular, Section 85 and Section 521 have both been construed to authorize out-of-state banks to “export” interest rates allowed under the laws of states where they are located on loans to borrowers located in other states. See, e.g., Marquette v. First of Omaha Service Corp., 439 U.S. 299 (1978) (holding that Section 85 authorizes a national bank to charge interest on interstate loans at rates allowed where the bank is located, regardless of more restrictive laws in the state where the borrower is located); Greenwood Trust Co. v. Mass., 971 F.2d 818 (1st Cir. 1992), cert. denied, 506 U.S. 1052 (1993) (same with respect to FDIC-insured state banks).

Section 521 expressly states that Congress’ intention in giving insured state banks this authority on par with national banks is “to prevent discrimination against State-chartered insured banks . . . with respect to interest rates.” In DIDMCA Section 525, however, Congress gave states authority to opt out of Section 521, but only “with respect to loans made in such State.” A handful of states enacted opt-out legislation shortly after DIDMCA went into effect. With the exception of Puerto Rico and Iowa, these states have all since repealed or decided not to extend their original opt-outs. Colorado originally opted out, then opted back in, and recently opted out again in 2023. Similar opt-out legislation was introduced in Minnesota, Nevada, Rhode Island and Washington, DC last year, but none of these proposals were ultimately adopted. In last November’s election, voters in Nevada rejected a statewide referendum that was intended to result in that state’s opt-out.

Proponents of H.B. 2561 hope to prevent insured state banks located outside of Oregon from applying their higher home state rates on loans to Oregon consumers. However, we feel strongly that this is not what Congress intended and that courts will not construe the scope of a states’ opt-out this broadly. Last year, in a well-reasoned opinion, a federal district court in Colorado enjoined the state from enforcing its usury laws with respect to loans made by out-of-state banks, concluding that these loans are not “made in” Colorado, and that Colorado’s opt-out under DIDMCA Section 525, therefore, does not apply. The state’s appeal is currently pending before the Tenth Circuit.  Not surprisingly, the FDIC has withdrawn the amicus brief it filed in the 10th Circuit in support of the state of Colorado. Now, the only “on record” position of the FDIC with respect to this opt-out issue is an amicus brief it submitted to the 1st Circuit Court of Appeals in 1992 in the Greenwood Trust case cited above. In that brief, the FDIC argued that because Greenwood Trust was a Delaware state bank, its extensions of credit to Massachusetts credit card borrowers were not “made in” Massachusetts, and “the fact that a State has countermanded under section 525 should not affect the usury preemption of section 521 for a bank not located in that state.”

As we have previously blogged, we believe the answer as to where a loan is made for purposes of a state’s opt-out under DIDMCA Section 525 is obvious in light of the context of when DIDMCA was adopted, its legislative history, and longstanding canons of statutory interpretation. When construed under this framework, a loan is made where the lender performs material lending functions, not where the borrower is located.

If Oregon enacts the opt-out under H.B. 2561, it will, like Colorado, be mired in litigation for the foreseeable future; moreover,the legislature’s intended effect of preventing lending at rates above 36% APR could never be fully achieved. Even if courts ultimately disagree with our position (and the conclusion reached last year by the federal district court in Colorado) and rule that a DIDMCA Section 525 opt-out prohibits out-of-state insured state banks from exporting rates allowed under their home states on loans to Oregon consumers, H.B. 2561 still would not prevent out-of-state national banks, thrifts or credit unions from bypassing Oregon usury laws. In effect, H.B. 2561 could not prevent lending at rates above 36% in Oregon. At most, the only thing H.B. 2561 could do is make high-rate lending less competitive since national banks, thrifts and credit unions located in other states would remain free to export their home state rates on loans to Oregon consumers.