The U.S. District Court for the District of Colorado preliminarily enjoined the enforcement of a Colorado law that would have applied Colorado interest rate caps to loans made by state-chartered banks—including banks located outside of Colorado—to Colorado consumers for certain credit products. The June 19 ruling, which decided an issue of first impression, specifically prevents Colorado from applying its interest-rate caps to state-chartered banks that are located and perform key loan-making functions outside of Colorado. Those banks will remain subject to their home state interest caps or the federal funds rate plus 1%. The decision will have significant implications for states attempting to apply their interest-rate caps to banks located outside of their borders.
The issue arose because of Colorado’s “opt out” of a provision of the federal Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) that expressly preempts state interest rate caps. On March 25, the American Fintech Council, represented by S&C, along with the National Association of Industrial Bankers and the American Financial Services Association sued the Colorado officials charged with enforcing the law. Colorado argued that the opt-out provision allowed it to apply its interest rate caps to loans made to Colorado borrowers from state-chartered banks outside Colorado. The plaintiffs argued that DIDMCA opt-out does not extend that far.
The S&C team representing the American Fintech Council included Matthew Schwartz, Morgan Ratner, and Leslie Arffa.