A group of Democratic attorneys general have reached out to a handful of Senators in an attempt to lobby against a pair of bills that would allowing debt buyers to bypass state interest rate caps and undo an Appeals Court ruling which ruled that a debt buyer was not privy to the same pre-emption from state usury laws as the financial institution that originated the loan.
HR 3299, the Protecting Consumers’ Access to Credit Act of 2017, has passed the House of Representatives and is now in the Senate for consideration, and HR 4439, the Modernizing Credit Opportunities Act, remains before the House Financial Services Committee. The state AGs are looking for Congress not to open a loophole that would allow lenders, and subsequent purchasers of those unpaid debts, to sidestep state laws.
In the case of Madden v. Midland Funding, a plaintiff sued Midland Funding, a unit of Encore Credit, after the debt buyer purchased a portfolio of credit card loans from Bank of America. As a national bank, BofA was exempt from state usury laws, and was allowed to charge the maximum interest rate based on the state in which it is headquartered, which is Delaware. Delaware’s interest rate cap is 27%. When Midland purchased the portfolio, it tried to continue charging the same interest rate. A plaintiff in New York, where the cap is 25%, sued, arguing that Midland should not enjoy the same pre-emption benefits since it is not a national bank.
Proponents of the legislation say that, if passed, it will restore consistency to the banking system and allow the financial system to continue to modernize, after the Appeals Court ruling upended nearly 200 years of legal precedent. The state AGs disagree.
It is even more important to preserve state law and allow enforcement of those laws against non-bank entities, many of which are regulated primarily at the state level. Congress should not now override state-granted protections in this important sphere of state regulation.
The letter was sent o Sen. Mitch McConnell [R-Ky.], the Senate Majority Leader, as well as Sen. Chuck Schumer [D-N.Y.], the Senate Minority Leader, Sen. Mike Crapo [R-Ind.], chairman of the Senate Banking Committee, and Sen. Sherrod Brown [D-Ohio], ranking member of the Senate Banking Committee.
