WASHINGTON — A coalition of banking and credit union trade groups, including America’s Credit Unions, has urged a federal appeals court to uphold a lower court ruling that would preserve the ability of state-chartered financial institutions to export interest rates across state lines, arguing that Colorado’s interpretation of federal law would disrupt interstate lending and create significant compliance burdens.
The coalition, led by the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, America’s Credit Unions and 52 state bankers associations, filed a supplemental amicus brief June 4 in the en banc proceeding before the U.S. Court of Appeals for the Tenth Circuit in National Association of Industrial Bankers v. Weiser.
According to the coalition, the case centers on the interpretation of Section 525 of the Depository Institutions Deregulation and Monetary Control Act of 1980, or DIDMCA, and Colorado’s attempt to apply its state interest-rate caps to loans made by state-chartered banks located outside the state.
The Argument
The trade groups argue that a loan is “made” in the state where the lender performs its lending functions, not in the state where a borrower resides or happens to be located when credit is extended. Colorado and supporting parties contend that loans are made in both locations.
In their brief, the organizations said Congress intentionally used the phrase “loans made in such State” when drafting DIDMCA and did not adopt broader language that would have included loans merely executed by borrowers in a particular state.
The groups further argued that DIDMCA was enacted in 1980 to place state-chartered depository institutions on equal footing with national banks by granting them comparable authority to charge interest rates permitted in their home states. They contend Colorado’s interpretation would undermine that goal by allowing states that opt out of DIDMCA’s rate-exportation provisions to impose restrictions on out-of-state state-chartered institutions while leaving national banks unaffected.
The coalition also warned of significant operational challenges if interest-rate authority depended on a borrower’s location at the time a loan is made. Under such a framework, lenders would be required to determine and track borrowers’ locations for credit card transactions, online loans and other forms of interstate lending.
‘Administrative Morass’
The brief argued that modern banking systems would face what it described as an “administrative morass” if lenders were forced to apply multiple interest-rate structures within a single account based on changing borrower locations.
The organizations also cited longstanding interpretations by the Federal Deposit Insurance Corporation supporting their position. According to the brief, the FDIC has maintained since at least 1983 that a state’s decision to opt out of DIDMCA does not limit the interest rates charged by state-chartered banks located in other states. The coalition pointed to FDIC interpretive guidance and a 1992 amicus filing in the Greenwood Trust litigation as evidence of that position.
The case is being closely watched by banks, credit unions and other lenders because of its potential implications for interstate consumer lending. The trade groups argued that adopting Colorado’s interpretation could create a patchwork of state-specific interest-rate restrictions tied to borrower location and fundamentally alter interstate lending programs conducted by state-chartered financial institutions.
Request for AffirmationThe coalition asked the Tenth Circuit to affirm the district court’s ruling and hold that a loan is made only in the state where the lender performs its lending functions, arguing that such a decision would be consistent with the text and legislative history of DIDMCA, longstanding FDIC interpretations and Congress’s intent to maintain parity between state-chartered institutions and national banks.
