Sen. Mark Warner (D-Va.) on Friday introduced S.1642, an ABA-supported bipartisan bill clarifying that legally made bank loans may be resold and collected on by nonbank entities at the same interest rate. A similar measure was previously introduced in the House by Rep. Patrick McHenry (R-N.C.). The bill would re-establish a legal precedent that had been in place prior to the 2015 Madden v. Midland Funding case, which involved a lawsuit brought by a borrower whose loan was sold by a national bank to a debt buying company.
In that case, a judge in the Second Circuit Court of Appeals found that exporting the originated interest rate violated state usury law in the state where the borrower lived, because the loan buyer was neither a national bank nor acting on behalf of the bank. The court concluded that the preemption in the National Bank Act, which allows national banks and their affiliates to charge the lawful interest rate of their headquarters state without regard to usury laws in a consumer’s home state, did not apply to the debt buying company. That re-opened discussions about the “valid-when-made” doctrine, which holds that loan contracts that comply with usury laws at the time of origination do not become usurious in the hands of subsequent holders.