The Clearing House (TCH) filed a joint-trades (Trades) amicus brief in support of Midland Funding’s cert petition to the SCOTUS asking the Court to decide whether The National Bank Act, which preempts state usury law regulating the interest a national bank may charge on a loan, continues to have preemptive effect after the national bank has assigned the loan to another entity. The Second Circuit held in May 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, thereby creating a circuit split. In August, the Second Circuit denied Midland Funding’s request for a rehearing en banc. In the amicus brief, 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, thereby striking 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, thus injecting significant uncertainty into the purchase or sale of certain 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.
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