Supreme Court Declines to Hear Usury Law Case, Despite Industry's Pleas

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In a setback for the U.S. consumer finance industry, the Supreme Court said Monday that it will not review a lower court's decision that bolstered the ability of states to enforce bans on high-cost lending.

Industry trade groups were urging the justices to reconsider a decision by the 2nd Circuit Court of Appeals from May 2015. In the case, a debt-collection firm was sued by a New York borrower for charging an interest rate that exceeded the Empire State's rate cap. The lower court sided with the borrower.

The debt-collection company, Madden Funding, appealed the case to the Supreme Court. But on Monday, the justices denied the appeal without explanation.

The case hinged on the question of whether nonbanks that buy loans from banks can benefit from a key privilege enjoyed by banks – the right to charge interest rates in excess of state usury caps.

Although the ruling is currently binding in New York, Connecticut and Vermont, many in the financial industry worry that the same reasoning could eventually be applied nationwide.

The fears are particularly acute inside the marketplace lending sector, where many firms partner with banks to issue their loans in order to avoid complying with state usury laws. Uncertainly about the ruling has contributed to rising skittishness among the sector's loan buyers.

Bankers were also hoping that the Supreme Court would reverse the appeals court's ruling.

Last month, the U.S. solicitor general and the Office of the Comptroller of the Currency argued in a brief to the Supreme Court that the appeals court's ruling was incorrect.

But at the same time, the two agencies recommended against reviewing a Supreme Court review of the case, saying that the case was a poor vehicle for settling the legal issues at stake.

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