Last month, the Office of the Comptroller of the Currency’s (OCC) adopted a final rule clarifying that the terms of a national bank’s loans remain valid even after such loans are sold or transferred. The rule was intended to reject the Second Circuit’s decision in Madden v. Midland Funding 786 F.3d 246 (2015). The Federal Deposit Insurance Corporation (“FDIC”) followed suit later in the month, adopting a rule to clarify that interest rates on state bank-originated loans are not affected when the bank assigns the loan to a nonbank. These steps do not resolve all of the uncertainty surrounding the decision, as discussed further below.
- The Madden v. Midland Funding
In Madden v. Midland Funding, Saliha Madden, a New York resident, contracted with Bank of America for a credit card with a 27% interest rate. That rate exceeded the 25% usury cap under New York law. But, as a national bank, Bank of America believed that it was entitled to “export” the interest rate of Delaware, its place of incorporation, under the National Bank Act and attendant principles of federal preemption. By the time Madden defaulted, the balance had been acquired by Midland Funding, a debt collector headquartered in California. When Midland Funding tried to collect the debt at the 27% interest rate, Madden sued under New York usury laws. She argued that Midland could not take advantage of Bank of America’s interest-rate exportation.