According to the Second Circuit, debt buyers are not entitled to National Banking Act (the "NBA") preemptions. In Madden v. Midland Funding, LLC, 2015 U.S. App. LEXIS 8483 (2nd Cir. 2015), the consumers sued the debt buyer alleging that the debt buyer attempted to collect interest at a rate higher than permitted under New York law. The debt buyer argued that it was the assignee of a national bank and therefore state law usury claims and FDCPA claims predicated on state law violations were preempted by the NBA.
Under the NBA, national banks are expressly permitted to charge interest at the rate allowed by the laws of the state where the bank is located. 12 U.S.C. §85. The NBA also provides the exclusive remedy for usury claims against national banks. Therefore, there is no such thing as a state usury claim against a national bank.
Midland purchased the account at issue from a national bank and therefore took the position that, as the national bank's assignee, it was entitled to use the national bank's home state's interest rate. While under certain circumstances, assignees of national banks are entitled to the NBA usury preemptions, the court determined that debt buyers are not. In doing so, the court relied heavily on last year's OCC bulletin which provides guidelines as to how national banks are to manage the risk associated with selling consumer accounts to debt buyers. The court determined that since the debt buyer was acting on its own behalf and not on behalf of the national bank or carrying out the business of the national bank, the debt buyer could not avail itself to the preemptions contained in the NBA. The court therefore reversed the district court and remanded to the state court.
Debt buyers should take consolation as to two key points made by the Court:
- First, the court did not rule on whether the cardmember agreement's Delaware choice of law provision precluded the New York usury claim as that issue had not been reached previously by the district court; and
- Second, the court made clear that the potential usury claim was only as to interest charged after the account was assigned to Midland.