A Win for Colorado Consumers
In a significant court ruling in Colorado, a federal judge preliminarily agreed with the American Financial Services Association, the American Fintech Council, and the National Association of Industrial Bankers’ legal challenge to a Colorado statute that purports to apply Colorado law on loans made to Colorado residents by state-chartered banks located outside Colorado. Last week’s ruling for now preserves access to credit for Colorado consumers.
As background, the three trades filed suit in March, challenging a Colorado statute passed in June 2023 and due to take effect on July 1, 2024, that supporters claimed would curb “predatory” lending by banks outside Colorado by opting out of the Depository Institutions and Monetary Control Act of 1980 (DIDMCA). DIDMCA was passed by Congress after the U.S. Supreme Court held that the National Bank Act permits national banks to export rates to all other states, no matter the bank’s “home state.” DIDMCA allows state-chartered federally insured banks to export interest rates to other states, just as national banks do. This parity allowed 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.”
But as explained in 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 the trade groups “have made a strong showing that they are substantially likely to succeed on the merits of their preemption claim.”
Beyond the legal challenge and court filings, AFSA supported the effort with an op-ed by AFSA Senior Vice President Danielle Fagre Arlowe, as well as 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
