State AGs urge Senate to reject 'Madden Fix' bills

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WASHINGTON — A group of 21 state attorneys general are calling on Congress to vote against two House-passed bills that they say would undermine states’ ability to enforce consumer protection laws.

In a letter to the Senate leadership as well as Senate Banking Committee Chairman Mike Crapo, R-Idaho, and Sen. Sherrod Brown, the committee’s top Democrat, the state attorneys general said they oppose legislation that would allow debt buyers, including fintech firms, to bypass state interest rate caps, as well as a bill that would say that a bank is the “true lender” in any loan assignment arrangement with a third-party service provider.

“If passed, these bills would allow nonbank lenders to sidestep state usury laws and charge excessive interest rates that would otherwise be illegal under state law,” wrote the state attorneys generals, led by Colorado Attorney General Cynthia Coffman and Massachusetts Attorney General Maura Healey.

They added that the bills "would constitute a substantial expansion of the existing preemption of state usury laws."

Both bills have already cleared the House.

HR 3299 would define a loan and the interest rate set by the lender as “valid when made,” regardless of whether the loan is later sold to a nonbank, such as a marketplace lender, in a different state. It effectively reverses what is known as the 2015 Madden v. Midland decision in the Second Circuit, which said such loans did not enjoy such favorable treatment.

Proponents of the legislation argue that the court in the Madden ruling thwarted marketplace lenders from buying debt from banks and ultimately prevented companies from offering more credit to consumers.

HR 4439 was intended to “clarify that the role of the insured depository institution as lender and the location of an insured depository institution under applicable law are not affected by any contract between the institution and a third-party service provider,” according to its text.

Supporters of the measure say it would strengthen partnerships between banks and technology firms and expand credit access.

"This will remove the uncertainty and inconsistent regulatory direction that has limited the ability of these partnerships and granting consumers access to credit," James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association, wrote in a May letter to Rep. Trey Hollingsworth, R-Ind.

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