On May 16, the U.S. District Court for the District of Colorado held a hearing in NAIB, et al v. Weiser, et al. on a motion filed by three financial services industry trade groups to preliminarily enjoin Colorado from enforcing Colo. Rev. Stat. § 5-13-106 (the “Opt-Out Legislation”) to the extent it purports to apply Colorado’s interest rate and fee limitations to loans made by federally insured out-of-state state-chartered banks to Colorado borrowers. As discussed in prior blog posts here and here, Section 525 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) allows states to enact laws opting out of DIDMCA Section 521’s preemptive effect with respect to loans “made in” the enacting state. At issue in the litigation is where a loan is made in the case of loans to Colorado residents by insured state banks located in other states. The plaintiff industry groups contend that, for purposes of Section 525, loans to Colorado residents by insured state banks located in other states should be deemed “made in” the state where the bank is located or the state where key lending functions occur. Colorado argues that, for purposes of Section 525, a loan is “made in” the borrower’s state. The FDIC, in an amicus brief in support of Colorado, argues that, for purposes of Section 525, a loan is “made in” both the state where the borrower is located and also the state where the lender is located.
The Opt Out Legislation is due to become effective on July 1, 2024. The trade groups filed a Motion for Preliminary Injunction on April 2, 2024. In response, the two Defendants named in the lawsuit, the Colorado Attorney General and Colorado Uniform Consumer Credit Code Administrator, filed a brief in opposition, and the FDIC filed an amicus brief in support of the State of Colorado. Plaintiffs filed a reply in support of their motion. Ballard Spahr, acting on behalf of the American Bankers Association (ABA) and the Consumer Bankers Association (CBA), submitted an amicus brief in support of the trade groups.
The preliminary injunction hearing did not involve the testimony of any witnesses or introduction of evidence, but instead counsel for the Plaintiffs, the Defendants, and the FDIC presented oral argument. Counsel for the Plaintiffs provided the Court with a copy of an amicus brief filed by the FDIC in 1992 in Greenwood Trust Co. v. Massachusetts, 971 F.2d 818 (1st Cir. 1992), in which the FDIC had taken a position diametrically contrary to its current interpretation of where a loan is made for purposes of Section 525 of DIDMCA. In that prior brief, the FDIC argued that because Greenwood Trust was a Delaware state bank, its extensions of credit to its Massachusetts credit card borrowers were not “made in” Massachusetts, and “the fact that a State has countermanded under section 525 should not affect the usury preemption of section 521 for a bank not located in that state.” Counsel for the FDIC did not address this about-face at the preliminary injunction hearing.
The Court asked questions of all counsel at the hearing and stated that it would rule on the motion for a preliminary injunction before the Opt-Out Legislation is due to become effective on July 1.
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