National Association of Industrial Bankers v. Weiser

Issue: Whether Colorado’s “rate opt-out law” violates the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA)

Case Summary: ABA filed a coalition amicus brief urging the Colorado district court to grant a preliminary injunction to prevent 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. Under Section 521 of DIDMCA, a state-chartered bank may lend nationwide at either its home state’s interest-rate caps or a federal interest-rate cap, depending on which is higher. The federal interest rate cap is one percent above the specific Federal discount rate. Section 525 of DIDMCA allows states to enact laws opting out of Section 521’s preemptive effect concerning loans “made in” the enacting state. The opt-out law seeks to limit federal interest rate preemption only for consumer credit transactions made in Colorado. The law will take effect on July 1, 2024.

The National Association of Industrial Bankers, American Financial Services Association, and American Fintech Council (fintech trades) sued Colorado to block the state from enforcing its rate opt-out law. The fintech trades argued: Colorado’s attempt to opt out of DIDMCA exceeds its authority and violates the U.S. Constitution; the National Bank Act preempts the opt-out law; the opt-out law violates the U.S. Constitution’s Supremacy Clause; the opt-out law violates Sections 521 and 525 of DIDMCA; and the opt-out law violates the U.S. Constitution’s Commerce Clause. The fintech trades argued under Section 525, loans to Colorado residents by insured state banks located in other states 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 its amicus brief supporting Colorado. In its brief, FDIC argued 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 fintech trades incorrectly relied on FDIC General Counsel Opinion 11. According to FDIC, Opinion 11 only interprets Section 521 which discusses where a bank is located not where a loan is made. Moreover, FDIC asserted Opinion 11 did not address opt-out or Section 525 and is inapplicable.

ABA filed its brief providing counterarguments to FDIC’s brief. 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.” The legislative history of the usury preemption deregulation provisions in Sections 521-523 of DIDMCA demonstrates the entire focus was on state banks located in states with modest usury ceilings. Under these circumstances, it is economically infeasible to lend money to residents within those same states because of prevailing high interest rates. ABA reiterated in Section 525 of DIDMCA, Congress permitted states to opt out of the preemption provisions in Section 521-523 for loans made in such states. However, the legislative history does not suggest this language was referring to interstate loans made by banks in their own states and in compliance with their own states’ interest ceilings to borrowers in an opt-out state. ABA claimed Congress focused solely on creating parity between state-chartered depository institutions and national banks for the right to charge interest at 1% above the Federal Reserve Discount Rate on local loans.

Next, ABA argued under Section 525 of DIDMCA, Congress contemplated a loan is “made” in the state where lending functions are performed. Three months before enacting Section 525, Congress amended the National Housing Act, by adding a new Section 529. Section 529 allowed states to countermand preemption for loans “made or executed in” the state. Congress knew how to be explicit on this issue, and its choice three months later to use only the lender-centric word “made” in Section 525 without also adding the bilateral term “executed” is highly significant.

ABA also claimed the framework proposed by Colorado and the FDIC for determining where a loan is “made” for Section 525 opt-out purposes is improperly based on contract formation principles, rather than loan-making activities. Colorado and FDIC relied on two Dormant Commerce Clause cases, Quick Payday Inc. v. Stork and Swanson v. Integrity Advance, LLC. ABA claimed these cases shed no light on the Congressional understanding of where a loan is made for purposes of Section 525. Additionally, ABA pointed out that Colorado and FDIC’s interpretation of where a loan is made creates confusion for open-end credit and point-of-sale transactions.

Finally, ABA argued the court owes no deference to FDIC’s amicus brief. ABA noted the U.S. Supreme Court, Tenth Circuit, and other appellate courts have repeatedly held agencies litigating positions unsupported by regulations, rulings, or administrative practice are not owed deference. However, FDIC did not point to any prior FDIC regulation, rule, or opinion letter where it has adopted the position for Section 525. ABA asserted it has been 44 years since the enactment of DIDMCA, but the FDIC has yet to propose a regulation setting forth its view on where a loan is made for purposes of Section 525. Providing deference to the FDIC’s newly announced views on the issue in its amicus brief would impermissibly allow the agency to create a de facto new regulation.