The Clearing House Association (TCH) filed a joint-trades amicus brief with the Second Circuit requesting that the Court grant a rehearing or rehearing en banc of its decision in Madden v. Midland Funding. As a reminder, the Second Circuit recently held that national bank preemption of state usury laws extends only to an originating national bank, and that preemption does not extend to non-national bank entities that are merely assignees of debt originated by a national bank.
The Trades argue that the Second Circuit’s decision directly contravenes the foundational and longstanding principles of the law of usury, as well as the Congressional framework governing the powers of national banks, which provides that a single federal scheme should govern, among other things, the rate of interest that may be charged on a loan. Therefore, the decision strikes at the heart of the settled expectations upon which the credit markets are built. Additionally, the Trades argue that the decision creates confusion as to which state’s interest laws would apply if a loan were sold, thereby injecting significant uncertainty into the purchase or sale of any loans, whether by national banks, state-chartered banks or non-bank entities and whether through a single transaction between counterparties, the secondary markets, securitizations, or participations. This confusion could translate into a reduction in the liquidity and value of loans held by national banks, which could, in turn, reduce credit availability and increase the cost of credit, particularly for small businesses and low income families and ultimately have safety and soundness ramifications on banks.