Proposed settlement would resolve claims in Madden v. Midland Funding, LLC

Courts Usury Class Action Settlement National Bank Act Interest Rate Madden

On March 1, plaintiffs filed a proposed class action settlement agreement with a debt collection firm in the U.S. District Court for the Southern District of New York, which would potentially end litigation dating back to 2011 concerning alleged violations of state usury limitations. The proposed settlement would resolve claims originally brought by the plaintiffs alleging that the defendants violated the FDCPA and New York state usury law when it attempted to collect charged-off credit card debt, purchased from a national bank, from borrowers with interest rates above the state’s 25 percent cap. As previously covered by InfoBytes, in 2015, the 2nd Circuit reversed the district court’s 2013 decision, and held that a nonbank entity taking assignment of debts originated by a national bank is not entitled to protection under the National Bank Act from state-law usury claims. This ruling contradicted the “Valid-When-Made Doctrine,” which is a longstanding principle of usury law that if a loan is not usurious when made, then it does not become usurious when assigned to another party. Following the U.S. Supreme Court’s decision to decline to hear the case, the district court issued a ruling in 2017 (covered by InfoBytes here) holding that New York’s fundamental public policy against usury overrides a Delaware choice-of-law clause in the plaintiff’s original credit card agreement. The court granted the plaintiff’s motion for class certification, and allowed the FDCPA and related state unfair or deceptive acts or practices claims to proceed. However, the court did not allow the plaintiff’s claims for violations of New York’s usury law to proceed, as it held that New York’s civil usury statute does not apply to defaulted debts and that the plaintiff cannot directly enforce the criminal usury statute.

Under the terms of the proposed settlement, the defendants are required to, among other things, (i) provide class members with $555,000 in monetary relief; (ii) provide $9.2 million in credit balance reductions; (iii) pay $550,000 in attorneys’ fees and costs; and (iv) agree to comply with all applicable laws, regulations, and case law regarding the collection of interest, including the collection of usurious interest.