In a significant court ruling in Colorado, a federal judge preliminarily agreed with the American Financial Services Association (AFSA), the American Fintech Council, and the National Association of Industrial Bankers’ legal challenge to a Colorado statute that seeks to apply Colorado law on loans made to Colorado residents by state-chartered banks located outside Colorado. Last week’s ruling preserves access to credit for Colorado consumers.
The three trade groups filed suit in March, challenging a Colorado statute passed in June 2023 and due to take effect on July 1, 2024. Supporters claimed the statute would curb “predatory” lending by banks outside Colorado by opting out of the Depository Institutions and Monetary Control Act of 1980 (DIDMCA). DIDMCA was enacted by Congress after the U.S. Supreme Court held that the National Bank Act permits national banks to export rates to all other states, regardless of the bank’s “home state.” DIDMCA allows state-chartered federally insured banks to export interest rates to other states, similar to national banks. This parity facilitated innovation and new competition for consumer-credit products.
“In state after state, we’ve heard people claim that opting out of DIDMCA would stop payday lending,” AFSA CEO and President Bill Himpler noted. “The frustration for us is that our state-chartered bank members are not in the payday business. They’re in the credit card business; they’re in the vehicle-finance business. They are brand names that have been around for decades. This court got it right: a DIDMCA opt-out wouldn’t even prevent payday lending in the first place.”
According to AFSA’s and other trades’ filing, Colorado’s position that it can control the rate other states’ state-chartered banks could charge if a loan is made to a Colorado consumer is inconsistent with DIDMCA, would undermine the competitive position of state banks chartered outside Colorado, and would not advance the state’s goals. U.S. District Judge Daniel D. Domenico agreed, finding that trade groups “have made a strong showing that they are substantially likely to succeed on the merits of their preemption claim.”
Beyond legal challenges and court filings, AFSA supported its effort with an op-ed by AFSA Senior Vice President Danielle Fagre Arlowe and her testimony in other states considering a DIDMCA opt-out. “It is gratifying to see a court recognize what we’ve been saying from the beginning: that opting out of DIDMCA isn’t the panacea they think it is,” explained Arlowe. “Had this law gone into effect, it would have devalued the dual banking system, period.”
June 25th, 2024