As we have previously reported, the en banc Tenth Circuit granting rehearing in National Association of Industrial Bankers v. Weiser, the closely watched case involving Colorado’s attempt to use Section 525 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (“DIDMCA”) to prevent out-of-state state-chartered banks from exporting their home-state interest rates to Colorado borrowers.

We recently discussed several amicus briefs filed in support of the State of Colorado. Another brief supporting the State was filed by the Bell Policy Center, a Colorado-based public policy organization that advocates for economic mobility and previously supported Colorado House Bill 23-1229, the legislation at issue in this case.

Unlike the other amici, which primarily focus on statutory interpretation and legislative history, the Bell Policy Center devotes much of its brief to explaining why, as a matter of public policy, Colorado enacted H.B. 23-1229 and why it believes the statute is necessary to protect Colorado consumers from high-cost lending.

Colorado’s Longstanding Regulation of Lending

The brief emphasizes that Colorado has a long history of regulating consumer interest rates through legislation and voter-approved initiatives. Among other things, the brief points to:

  • Colorado’s longstanding regulation of supervised installment loans;
  • Proposition 111, approved by approximately 73% of Colorado voters in 2018, which capped payday loan APRs at 36%;
  • The Colorado legislature’s subsequent enactment of H.B. 23-1229 to regulate alternative charge loans after lenders allegedly shifted from traditional payday lending to other products carrying triple-digit effective annual percentage rates; and
  • Additional state initiatives designed to expand access to responsible credit while limiting high-cost lending.

According to the Bell Policy Center, these measures reflect Colorado’s consistent public policy judgment that excessive interest rates are harmful to consumers and that regulating consumer lending is a core exercise of the state’s police powers.

The Brief Describes the Growth of Partnerships Between State Banks and Nonbank Lenders

The Bell Policy Center argues that DIDMCA preemption has substantially undermined Colorado’s consumer protection efforts by enabling nonbank lenders to partner with out-of-state state-chartered banks located in states with no interest-rate caps. In these arrangements, the amicus argues that the nonbank typically designs and markets the lending program, sets underwriting criteria, bears most of the economic risk, purchases the loans or receivables shortly after origination, and retains most of the economic benefits, while the bank’s principal role is to originate the loans. According to the Bell Policy Center, these arrangements have enabled lenders to offer Colorado consumers loans with very high annual percentage rates, notwithstanding Colorado’s interest-rate limitations.

Colorado’s Experience with “True Lender” Litigation

The brief also discusses Colorado’s prior enforcement actions against Avant and Marlette Funding, in which Colorado alleged that the nonbank companies—not the partnering banks—were the true lenders.

Those cases ultimately settled in 2020 after extensive litigation. The Bell Policy Center argues that those cases illustrate why reliance on true lender litigation is an inadequate mechanism for protecting consumers because such litigation is expensive, fact-intensive, and may take years to resolve while allegedly unlawful lending programs continue operating.

According to the brief, Colorado enacted H.B. 23-1229 in part to avoid having to litigate true lender issues on a case-by-case basis.

Statutory Interpretation

Although much of the Bell Policy Center’s brief focuses on public policy, it also supports Colorado’s statutory interpretation.

Like several of the other amici supporting Colorado, the Bell Policy Center argues that:

  • Section 525 permits states to opt out of DIDMCA’s interest-rate exportation provisions for loans made in the opt-out state;
  • the ordinary meaning of a loan being “made” encompasses loans made to borrowers located within the state;
  • the district court improperly focused exclusively on the location of the bank rather than the location of the borrower; and
  • Colorado’s interpretation better serves the purpose of Congress’s decision to preserve state authority through the Section 525 opt-out provision.

The brief also cites the FDIC’s discussion in the preamble to its 2020 valid-when-made regulation as supporting the proposition that a bank may be “located” in one state while “making loans” in another state for purposes of Section 525. As we have discussed in prior posts however, we believe the significance of that language should not be overstated. The 2020 rulemaking was directed to the “valid-when-made” doctrine, not the scope of Section 525, and the quoted language appears in the preamble rather than the regulatory text. Moreover, the FDIC has expressed differing views concerning Section 525 over the years, including much earlier interpretations indicating that a state’s opt-out does not affect out-of-state state-chartered banks making loans into the opt-out state. Thus, whether the 2020 preamble should be viewed as an authoritative interpretation of Section 525 remains open to considerable debate.

Observations

The Bell Policy Center’s brief differs from many of the other amicus filings in that it is primarily a policy brief rather than a statutory construction brief. Much of its discussion concerns the evolution of Colorado’s consumer lending laws, the state’s efforts to regulate high-cost lending, and the practical difficulties of relying on true lender litigation to police bank-fintech partnerships.

Those policy considerations may help explain why Colorado enacted H.B. 23-1229, but they do not answer the legal question before the court. Because Section 525 is a federal statute, the relevant interpretive question is not what the Colorado legislature intended when it enacted state legislation or adopted a particular policy response. The only legislative intent that matters for purposes of construing Section 525 is the intent of Congress when it enacted DIDMCA and included Section 525’s opt-out provision. State legislative intent cannot expand, narrow, or otherwise redefine the meaning of a federal statute.

Accordingly, while the Bell Policy Center’s brief provides background on Colorado’s consumer protection concerns, the en banc court must ultimately decide the case by focusing on Congress’s intent in enacting Section 525, not on the Colorado legislature’s reasons for adopting H.B. 23-1229.