Citing Madden v. Midland Funding, Colorado Regulator Challenges Bank Partnership Model

The Colorado Administrator of the Uniform Consumer Credit Code (UCCC”) has filed complaints against two UCCC licensees alleging violations of Colorado’s usury cap. Both licensees utilize bank partnerships to originate their loans.

Citing Madden v. Midland Funding, the Administrator, represented by the office of the Colorado Attorney General, alleges that the licensees may not charge interest rates that the banks were permitted to charge under federal law. As the Administrator argues,

Specifically, certain banks may, pursuant to federal law, lawfully lend in Colorado and other states at rates that exceed the interest and other finance charge limits imposed by state law. This right is sometimes referred to as federal interest rate exportation.

[The licensees], and other non-banks cannot, however, enforce a bank’s federal interest rate exportation rights when they purchase loans from banks (or purchase loan receivables) because banks cannot validly assign such rights to non-banks. E.g., Madden v. Midland Funding, LLC, 786 F.3d 246, 250 (2d Cir. 2015) (distinguishing contrary precedent, and holding that non-bank purchaser of national bank’s loan could not enforce bank’s right to federal interest rate exportation).

The Administrator also alleges that the licensees, rather than the originating banks, were the true lenders of the loans.

Further, with respect to the [licensee loans] that [the bank] sells to [licensee or licensee’s] affiliates (including loans in which [the bank] sells only the receivables), [the bank] is not the true lender of the loans and, because the loans therefore are not made by a bank, federal interest rate exportation does not apply for this additional reason. E.g. CashCall, Inc. v. Morrisey, 2014 W. Va. LEXIS 587 (W. Va. May 30, 2014) (memorandum decision) (national bank that sold loans to non-bank was not the true lender of the loans because the non-bank purchaser bore the predominant economic interest in the loans and non-bank purchaser therefore could not enforce bank’s right to federal interest rate exportation).

[The bank] is not the true lender of the [licensee loans] that it sells to [licensee or licensee’s] non-bank affiliates because [the bank] does not bear the predominant economic interest in the loans.

The Administrator requests relief in the form of: injunctive relief, refund and penalty payments to Colorado consumers, a civil penalty paid to the Administrator, and attorney’s fees.

The licensees have not yet filed their initial responses.

Meade v. Avant of Colorado LLC d/b/a Avant, & Avant, Inc., 1:17-cv-0620-WJM

Meade v. Marlette Funding LLC d/b/a Best Egg, 1:17-cv-00575-PAB

About Patrick Siegfried

Patrick Siegfried is the author of the Usury Law Blog. Patrick is a practicing attorney in Bethesda, Maryland. Patrick’s work focuses on issues regarding alternative small business financing. He can be reached at psiegfried@usurylawblog.com

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