DIDMCA OPT-OUT
National Association of Industrial Bankers v. Weiser
Date: June 18, 2024
Issue: Whether Colorado’s “rate opt-out law” violates the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA).
Case Summary: The United States District Court of Colorado granted a preliminary injunction enjoining Colorado from enforcing its rate opt-out law.
In 2023, Colorado passed House Bill 23-1229 to opt out of the federal interest exportation right granted to federally insured, state-chartered banks under DIDMCA. A group of fintech trades sued Colorado to block enforcement of the rate opt-out law. The trades argued under Section 525 of DIDMCA, loans to Colorado residents by out-of-state banks should be deemed “made in” the bank’s home state or the state where key lending functions occur. Conversely, Colorado contended a loan is “made in” both the state where the borrower is located and the state where the lender is located.
The Federal Deposit Insurance Corporation (FDIC) filed an amicus brief arguing loan transactions between parties in different states can be “made” in the state where the borrower enters the transaction, just as much as they are “made” in the state where the lender enters the transaction. FDIC also claimed the trades incorrectly relied on FDIC General Counsel Opinion 11.
In response, the American Bankers Association filed a coalition amicus brief and urged the court to grant a preliminary injunction to prevent Colorado from enforcing its “rate opt-out law.” ABA argued applying Colorado’s law to state-chartered depository institutions outside Colorado would “completely eviscerate the level playing field between state and national banks Congress intended to create when it created DIDMCA.” ABA also emphasized under Section 525 of DIDMCA, Congress contemplated a loan is “made” in the state where lending functions are performed. ABA also argued no deference is owed to FDIC’s amicus brief.
On May 13, 2024, Colorado moved the court to dismiss the trades’ lawsuit, arguing: the opt-out law does not violate the Supremacy Clause because there is no conflict with federal law and the Supremacy Clause does not create a cause of action; the opt-out law does not violate the Dormant Commerce Clause because Congress authorized states to opt-out and discriminatory impact on interstate commerce has occurred; and the trades lack standing because their alleged injury misconstrues Section 525.
The court first concluded the trades sufficiently alleged Article III standing. The trades claimed their members are incurring significant administrative costs to comply with the interest-rate caps under the Colorado Uniform Consumer Credit Code (UCCC) and will continue to incur such costs. The trades also argued their members would lose both revenue and customer goodwill if they could no longer profitably offer their loan products to certain Colorado consumers because of the lower interest-rate caps under the Colorado UCCC. The court agreed, explaining the alleged injuries were concrete and particularized to confer standing. The court also rejected Colorado’s claim alleging the trades’ claims were unripe.
On the preliminary injunction, the court determined the trades were likely to succeed on the merits of their claims. The court determined that where a loan is made under Section 525 depends on where the lender is located and where the lender performs loan-making functions. The borrower’s location (in Colorado) does not determine where a loan is made. In other words, loans made by out-of-state state banks from a location outside of Colorado are not subject to Colorado’s DIDMCA opt out and may continue to rely on federal interest rate preemption to charge Colorado borrowers interest and certain fees on loans. The court pointed out that words like “making” a loan typically refer to what lenders do, while words like “receiving” or “obtaining” refer to what borrowers do. The court also noted that previous cases cited by the defendants and the FDIC, which suggested that loans could be made in multiple states, were about different legal issues and not relevant to the specific use of the term “made” in this context.
Additionally, the court determined the trades demonstrated a threat of irreparable harm absent an injunction, and the balance of harm was in their favor. The court reiterated the trades have shown their members will incur administrative costs, lost revenue, lost customers, and goodwill if they must comply with the interest-rate caps in the Colorado UCCC with respect to all loans made to Colorado consumers.
Bottom Line: A Scheduling Conference is set for Aug. 15, 2024.
Documents: Order
