The Federal Deposit Insurance Corp. is siding with the state of Colorado in
In a new court filing, the FDIC argues that Colorado can impose an interest rate cap on loans made by state-chartered banks that are headquartered in the other 49 states.
Three industry groups — the American Fintech Council, the American Financial Services Association and the National Association of Industrial Bankers — have sued to block the 2023 law. They are asking a federal judge to impose a preliminary injunction that would halt the law's implementation.
The FDIC is not a party to the Colorado litigation, but it does have a key voice on the legal issues that are at play in the case. So the agency's opinion, expressed in a friend-of-the-court brief, could carry weight with the judge.
"Its view should be authoritative," said Lauren Saunders, associate director at the National Consumer Law Center, an advocacy group that supports the Colorado law.
The plaintiffs' legal argument relies partly on a 1998 opinion by the FDIC's general counsel. But that 26-year-old opinion is not applicable in the context of the issues raised by the lawsuit, the FDIC argued in its April 23 filing.
The Colorado law is part of a long-running push by officials in Democratic-led states to stamp out attempts by high-cost nonbank lenders to get around state interest rate caps by partnering with banks. During Chairman Martin Gruenberg's tenure, the FDIC has been supportive of those blue-state efforts.
"Chairman Gruenberg has been outspoken about rent-a-bank lending, which is what the Colorado law is about," Saunders said.
An FDIC spokesperson declined to comment. A spokesperson for the plaintiffs also declined to comment on the FDIC's filing.
The Colorado attorney general's office said Tuesday in its own legal filing that Colorado has a clear right under a 1980 federal law to place rate restrictions on state-chartered banks.
"States, including Colorado, have a long history of protecting their citizens from predatory interest rates," the attorney general's office wrote. "Plaintiffs seek to deny Colorado the choice expressly provided by federal law."'
The lawsuit hinges on language in the Depository Institutions Deregulation and Monetary Control Act of 1980. That federal law gave state-chartered banks the ability to get around state interest rate caps — an authority that national banks already had — except in states that chose to opt out of the relevant provision.
Colorado became one of the few states to exercise the opt-out right when it passed its 2023 law.
The three industry groups argue that the opt-out right only applies to Colorado-chartered banks, and that banks chartered in the other states are not covered.
"It boils down to: Colorado can control its own banks," David Gossett, a partner at Davis Wright Tremaine who represents the plaintiffs, said in an interview last month.
The plaintiffs' interpretation hinges on their argument that a loan by an out-of-state bank is "made" outside of Colorado.
But the FDIC argues that for the purposes of legal analysis, when a Colorado borrower enters into a loan while that borrower is physically present in Colorado, the loan was "made" in Colorado.
The 2023 Colorado law, if it's allowed to take effect, will make it easier for officials in the state to keep out high-cost lenders. In recent years, Colorado officials have been going after those companies
In its April 23 filing, the Colorado attorney general's office noted that the financial technology company EasyPay had partnered with Utah-chartered
Before Colorado exercised its opt-out right, "TAB Bank pointed to federal law to justify lending to Colorado consumers at rates permitted by Utah, which does not have rate caps," the Colorado AG's office stated.
Assuming the Colorado law withstands legal scrutiny, it could offer a blueprint for other states that are looking to enforce rate caps. Similar legislation has been introduced in Minnesota, Rhode Island and the District of Columbia, according to advocates on both sides of the issue.
