Two state-chartered banks recently filed complaints for declaratory judgment and injunctive relief against the Administrator of the Uniform Consumer Credit Code for the State of Colorado, Julie Ann Meade. The complaints were filed in Colorado federal court and seek to permanently enjoin enforcement actions brought by Meade against the banks’ non-bank partners who, according to the complaints, market and service loans originated by the two banks and which the banks sometimes sells to their partners.
In her enforcement actions, Meade took the position that the two banks are not the “true lenders” of the loans, and that, pursuant to the Second Circuit’s decision in Madden v. Midland Funding, LLC, the banks could not validly assign their ability to export interest rates as state banks under federal law. Accordingly, the enforcement actions assert that the loans sold to the banks’ partners are subject to Colorado usury law despite the fact that state interest rate limits on state bank loans are preempted by Section 27 of the Federal Deposit Insurance Act (Section 27).
In their complaints, the banks allege that Meade’s enforcement actions disregard their right under Section 27 to export their respective home state’s interest rates to borrowers in other states and the “valid-when-made” doctrine which provides that a loan that is non-usurious when made cannot later become usurious after assignment. The banks contend that the doctrine is incorporated into Section 27. Accordingly, the banks argue that Meade’s enforcement actions against their partners for alleged violations of Colorado law are preempted by federal law.
For a fuller discussion of and links to the complaints, see our legal alert.