On June 27, 2016, the US Supreme Court elected not to review a Second Circuit decision that found debt purchased from a national bank by a non-national bank entity to be subject to state usury laws.
In 2015, the Second Circuit found that Midland Funding, a debt purchaser assignee of a national bank, would not be permitted to rely on National Bank Act provisions that permit national banks to charge interest rates at the rate of the state where the national bank is located. In its petition for certiorari, Midland argued that the National Bank Act’s “valid when issued” doctrine shields any debt that it purchases from a national bank from state usury and consumer protection laws.
Madden originally opened the credit card account in question in 2005, but was later unable to pay her balance of $5,000. In 2008, her debt was deemed uncollectable and was sold to Midland, absolving any national bank of any interest in the amount. Following Midland’s demand of 27 percent interest on the balance, Madden sued Midland for violation of usury and other debt collection laws in November 2011.
In March 2016, the Supreme Court invited the Solicitor General’s Office to file a brief expressing the United States’ views on Madden. In the submission, the Solicitor General recommended that the US Supreme Court deny certiorari because of, among other things, the absence of a circuit split and the possibility that the appellants may still prevail in the underlying dispute after the case is remanded to federal district court. This submission, however, made clear that the Solicitor General disagrees with the Second Circuit’s decision restricting non-bank loan purchasers from benefiting from state usury law preemption under the National Bank Act.
The Supreme Court order is available at: http://www.supremecourt.gov/orders/courtorders/062716zor_4fbi.pdf.
The Solicitor General’s brief is available at: http://www.scotusblog.com/wp-content/uploads/2016/06/midland.invite.18.pdf and the petition for a writ of certiorari is available at: http://www.scotusblog.com/wp-content/uploads/2016/03/Madden-MidlandCert-Petition-11-10-15.pdf.