While far from certain, this development shows that the Supreme Court is interested in the case and will likely give weight to the Solicitor General’s recommendation as to whether the Second Circuit’s ruling should be reviewed.

With a one-sentence order, the U.S. Supreme Court has asked the Obama administration to weigh in with its views on whether the Court should review a recent decision that has rocked the marketplace lending community. Madden v. Midland Funding is an important case that is being closely monitored by marketplace lenders and others that rely on the bank partnership model to make loans at interest rates above state usury limits. Midland Funding has asked the Supreme Court to review the controversial ruling by the U.S. Court of Appeals for the Second Circuit. Our summary of the case and recent updates are available here and here.

On March 21, the Supreme Court invited the Solicitor General’s Office to file a brief expressing the United States’ views on Madden. In that brief, we expect the Solicitor General to set forth the views of the primary federal banking agencies on whether the Supreme Court should grant certiorari and their relative positions regarding the issue in the case. Although not common, a request by the Supreme Court that the Solicitor General submit his views before the certiorari decision is not unheard of in a case that is as potentially important as Madden.

Given the time that the Solicitor General will need to prepare his brief, this development will certainly extend the timeframe for a decision by the Supreme Court and will keep interested parties waiting until the Court has time to review the brief. A final decision by the Court on whether to grant the petition for certiorari is now expected in the late spring, which means that, if review is granted, the case would be argued next fall.

Pepper Points

  • While far from certain, this development shows that the Supreme Court is interested in the case and will likely give weight to the Solicitor General’s recommendation as to whether the Second Circuit’s ruling should be reviewed. Stay tuned for more news after the Solicitor General files his brief.
  • With a Supreme Court that is operating with only eight Justices after the death of Justice Antonin Scalia, there is a possibility that, if review is granted, the Court could affirm by an equally divided court, which would only further extend the uncertainty caused by the decision in Madden.
  • Many marketplace lenders have been particularly affected by the Second Circuit’s decision, and some, such as Lending Club, have revised their contracts with banking partners as a result of that decision. Summaries of those changes are available here and here. If the Supreme Court grants certiorari, other marketplace lenders will need to decide whether to follow suit and amend their contracts or take the risk that the Court will overturn the Second Circuit’s ruling.
  • Investors in marketplace lending platforms and, in particular, the loans they originate are warily eyeing the impact of Madden on their investments.