As expected, the attorneys general of three large states have sued to block the “Madden fix” rule recently adopted by the Office of the Comptroller of the Currency (OCC). The lawsuit ensures that the uncertainty surrounding the “valid when made” doctrine, which the OCC hoped to resolve or at least reduce, will continue while the case works its way through the courts.

The complaint, which was filed in federal court in Oakland, California, contains the same arguments submitted by a larger group of attorneys general during the comment period for the proposed rule, all of which the OCC addressed in issuing the final rule. These arguments include that the final rule contradicts the plain language of federal statutes including Section 85 of the National Bank Act, that the OCC failed to comply with certain procedural requirements of the Administrative Procedure Act and the Dodd-Frank Act in adopting the final rule, and that the final rule is arbitrary and capricious in that the OCC failed to consider negative consequences of what the complaint disparagingly refers to as “predatory rent-a-bank schemes.” The complaint notably focuses on high-rate bank partnership lending, despite the fact that Madden also undermines lower-rate bank-model programs and banks’ abilities to maintain liquidity by selling or securitizing loans in whole or in part.

Although the complaint primarily raises pure questions of law that might be disposed of quickly, it also alleges disputable facts about matters such as the effect of Madden on markets, which could delay a decision at the trial court level. Given the likelihood that Madden uncertainty will continue for years, clients engaged in or financing bank-model programs should carefully evaluate high-risk states and program structures to minimize potential exposure.