A federal judge this week issued a preliminary injunction against a Colorado law capping interest rates and fees on loans to state residents made by state-chartered banks, no matter where the bank is located.
Three financial technology sector associations sued Colorado earlier this year after the state legislature passed a law opting out of the federal Depository Institutions Deregulation and Monetary Control Act, allowing the state to establish restrictions on loans made by state-chartered banks. Colorado argues that its restrictions on rates and fees applied not only to banks charted in the state, but those chartered in other states. U.S. District Court Judge Daniel Domenico sided with the plaintiffs in a lawsuit, ruling that under federal law, the determination of where a loan is made depends on where the lender performs its loan-making functions and not the borrower’s location.
The American Bankers Association and the Consumer Bankers Association filed an amicus brief in May in support of the lawsuit, saying that the law creates massive uncertainty for all federally insured depository institutions by subjecting them to multiple and inconsistent state laws. They also said the law would place state-chartered banks at a “severe disadvantage” with federally chartered institutions when lending.
