Three industry groups are suing to block
The lawsuit was filed Monday by the American Fintech Council, the American Financial Services Association and the National Association of Industrial Bankers. It challenges a Colorado statute that imposes rate caps on state-chartered banks that are based in the other 49 states.
The law is the latest effort by Colorado officials to
The plaintiffs argue that while federal law allows Colorado to impose rate caps on state banks that are chartered inside its own borders, they cannot do so on those that are chartered elsewhere.
"It boils down to: Colorado can control its own banks," said David Gossett, a partner at Davis Wright Tremaine who represents the plaintiffs.
A spokesperson for the Colorado attorney general's office, which is named as a defendant in the suit, declined to comment on what it described as active litigation.
The suit has implications beyond Colorado because other states that also want to crack down on high-cost lending are eyeing the Centennial State's 2023 law as a model. Similar legislation has been introduced in Minnesota, Rhode Island and the District of Columbia, according to advocates on both sides of the debate.
"If this was just a one-off by Colorado, I don't know if people would have rallied around bringing a lawsuit. But when it's the tip of the iceberg, it does matter," Gossett said.
The Colorado law is scheduled to take effect on July 1. Within the next week or so, the plaintiffs plan to seek a preliminary injunction that would halt its implementation, Gossett said Tuesday.
He argued that imposing a rate cap on state-chartered banks that are based outside of Colorado will lead those banks to curtail offers of credit to higher-risk Colorado consumers. The result will be less credit availability and probably higher interest rates, Gossett said, since national banks will not be subject to the rate cap.
Under Colorado law, interest rate restrictions range from 8% to 45%, according to the lawsuit, depending on factors such as the type and size of the loan.
Consumer advocates have long been calling for crackdowns on partnerships between high-cost nonbank lenders and out-of-state banks that seek to evade state interest rate caps. In Colorado, state officials have been going after high-cost lenders on a case-by-case basis.
Last April, Colorado Attorney General Phil Weiser
The new Colorado law would make it easier for officials in the state to keep out high-cost consumer lenders, rather than taking separate legal actions against various companies.
But the lawsuit filed Monday argues that Colorado's statute exceeds the authority the state has under a 1980 federal statute. That federal law, the Depository Institutions Deregulation and Monetary Control Act, gave states the right to opt out of provisions that gave state-chartered banks the same authority with respect to interest rates that national banks already had.
The question raised by the lawsuit is whether, when Colorado exercises its opt-out right, it can place restrictions only on banks chartered within its own borders, or if it can also bind state-chartered banks elsewhere that make loans to Colorado residents.
Lauren Saunders, associate director at the National Consumer Law Center, argued that the plaintiffs are misinterpreting the 1980 federal law.
"They're confusing two different parts of the law that have different standards," she said in an interview.
On Monday, Saunders submitted testimony in favor of
Few states had used their opt-out authority under the 1980 federal law before Colorado did last year.
"As long as we are seeing state-chartered banks enabling predatory lending in other states, we are going to see states exercising their rights to prevent that predatory lending," Saunders said.
