Madden Closer to Being Fixed

Financial Services Law

Inching one step closer to passage, the full House of Representatives approved the so-called Madden fix bill by a vote of 245 to 171.

What happened

The Protecting Consumers’ Access to Credit Act of 2017 would amend four federal statutes: the National Bank Act (NBA), the Home Owners’ Loan Act, the Federal Credit Union Act and the Federal Deposit Insurance Act. Each statute would add the following language:

“A loan that is valid when made as to its maximum rate of interest in accordance with this section shall remain valid with respect to such rate regardless of whether the loan is subsequently sold, assigned, or otherwise transferred to a third party, and may be enforced by such third party notwithstanding any State law to the contrary.”

H.R. 3299 would preempt a May 2016 decision from the U.S. Court of Appeals, Second Circuit in Madden v. Midland Funding, LLC, where the court refused to find that the NBA preempted state law usury claims against an assignee of a national bank.

In that case, New York resident Saliha Madden opened a credit card account with a national bank in 2005. One year later, the credit card program was consolidated into another national bank, which sold Madden’s then-defaulted $5,000 credit card account to Midland Funding LLC, a debt purchaser. A Midland affiliate sent Madden a letter in November 2010 seeking to collect payment on her debt and stating that an interest rate of 27 percent per year applied.

Madden then filed a putative class action suit against Midland and its affiliate, alleging they had engaged in abusive and unfair debt collection practices in violation of the Fair Debt Collection Practices Act and charged a usurious rate of interest in violation of New York state law, which prohibits a licensed lender from charging interest rates in excess of 25 percent per year.

The defendants responded with a motion for summary judgment, arguing that because they were assignees of a national bank, the plaintiff’s claims against them were preempted by the NBA, which permits a bank to charge interest at the rate of the state where it is located and provides the exclusive cause of action for usury claims against national banks.

Reversing summary judgment in favor of the defendants, the Second Circuit refused to apply NBA preemption to the third-party debt buyers. “Because neither defendant is a national bank nor a subsidiary or agent of a national bank, or is otherwise acting on behalf of a national bank, and because application of the state law on which Madden’s claim relies would not significantly interfere with any national bank’s ability to exercise its powers under the NBA, we reverse the District Court’s holding that the NBA preempts Madden’s claims,” the panel wrote.

Midland Funding filed a writ of certiorari with the Supreme Court, but the justices declined to take the case.

Legislators then stepped in to overturn the troubling decision. Last year, Sen. Mark Warner (D-Va.) introduced a measure that would codify the “valid when made” doctrine; similar language was found in the Financial CHOICE Act .

In December, the House Financial Services Committee passed H.R. 3299 by a vote of 42 to 17. With approval by the full House, the measure now moves to the Senate for consideration, beginning with the Banking, Housing, and Urban Affairs Committee.

To read H.R. 3299, click here.

Why it matters

The legislation’s chance of success in the Senate remains an open question. In the House, Democrats overwhelmingly opposed the measure (with 170 voting against and just 16 voting in favor). H.R. 3299 could be voted down if a similar scenario occurs during Senate voting, although it needs only 60 votes for passage.



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