House Republicans urge OCC to reverse effects of Madden ruling

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WASHINGTON — House Republicans are calling on the Office of the Comptroller of the Currency to offset the impact of a 2015 court ruling that blocks debt buyers from bypassing state interest rate caps.

In a letter to Comptroller Joseph Otting, all of the Republicans on the House Financial Services Committee said they believe there are administrative solutions to ease problems associated with the Madden v. Midland Funding decision.

“Fortunately, we believe administrative solutions to mitigate the consequences of the Madden decision are available and achievable,” the lawmakers wrote in a letter dated Sept. 19. “Specifically, the OCC has the authority to update its interpretation of the definition of ‘interest’ under the National Bank Act to ensure that our nation’s policies governing usury laws are applied on a clear, consistent basis nationwide.”

Until the Madden decision, financial institutions followed the “valid when made” doctrine, which provides that if a loan’s interest rate is valid in the state where it was originated, that loan continues to be valid when transferred to a party in another state.

But the 2nd U.S. Circuit Court of Appeals ruled that when nonbanks purchase loans from federally chartered banks in the secondary market, the usury laws of other states can apply.

House Republicans said that ruling has caused “significant uncertainty and disruption in many types of lending programs.”

“The Madden decision has resulted in a fragmented interpretation of banking ... [laws] in our country, which threatens bank-fintech partnerships that can often provide small businesses and consumers with better access to capital and financing alternatives,” the Republican members wrote.

Bills passed the House last year, when Republicans controlled the chamber, that would effectively unwind the Madden decision. But state attorneys general have pushed back against those efforts, saying the legislation would undermine states’ abilities to enforce consumer protection laws.

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Midland Funding v Madden Fintech regulations Marketplace lending Nonbank Joseph Otting House Financial Services Committee OCC