New Type of Lawsuit Involving Securitized Debt—Citing Madden, Plaintiffs Contend That Credit Card Debt Became Subject to NY Usury Laws Once the Debt Was Securitized: A Successful Outcome for Plaintiffs Could Threaten the Ability to Securitize All Debt—Not Just Credit Card—Because It Would Expose Securitized Debt to State-By-State Regulation

Sullivan & Cromwell LLP - June 17, 2019
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On June 12, 2019, in Cohen v. Capital One Funding, certain Capital One credit card holders filed a putative class action lawsuit in the U.S. District Court for the Eastern District of New York against (i) special purpose entities (“Trusts”) that purchased and securitized credit card receivables from Capital One, and (ii) the trustees of those Trusts.  Plaintiffs concede that, because Capital One is a national bank, the National Bank Act (“NBA”) preempts the application of New York usury laws to loans made by Capital One to New York credit card holders, and so plaintiffs did not name Capital One itself as a defendant.  But Plaintiffs contend that this federal preemption ceased once Capital One sold the credit card receivables to the Trusts, which then securitized them.  Thus, according to plaintiffs, the Trusts and trustees are violating New York law by continuing to charge and collect interest rates above New York’s usury limits.