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The Second Circuit Court of Appeals’ recent decision in Madden v. Midland Funding, LLC held that a nonbank entity taking assignment of debts originated by a national bank is not entitled to protection under the National Bank Act (“NBA”) from state-law usury claims. In reaching this conclusion, the Court appears to have not considered the “Valid-When-Made Doctrine”—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. If left undisturbed, the Court’s decision may well have broad and alarming ramifications. The decision could significantly disrupt secondary markets for consumer and commercial credit, impacting a broad cross-section of financial services providers and other businesses that rely on the availability and post-sale validity of loans originated by national or state-chartered depository institutions.
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Walter E. Zalenski, (202) 461-2910, firstname.lastname@example.org
- Jeffrey P. Naimon, (202) 349-8030, email@example.com
- John P. Kromer, (202) 349-8040, firstname.lastname@example.org
On April 15, Georgia Governor Nathan Deal signed HB 824, which amends state law to clarify that certain banking fees are not “interest” subject to the state’s usury cap applicable to state-chartered institutions. Specifically, the bill carves out from the definition of “interest” the following: overdraft and nonsufficient funds, delinquency or default charges, returned payment charges, stop payment charges, or automated teller machine charges, and any other charge agreed upon in a written agreement governing a deposit, share, or other account. The legislation was crafted to codify and expand a declaratory order issued by the state banking commissioner following a March 2013 Georgia Court of Appeals holding that Georgia law in some situations could allow overdraft fees to be considered interest. Plaintiffs in the case had sued a state bank claiming that its overdraft fees amounted to an interest rate that far exceeded the state’s usury cap. The changes made by HB 824 took effect immediately.
- Hank Asbill to discuss "The federal fraud sentencing guidelines: It's time to stop the madness" at a New York Criminal Bar Association webinar
- Daniel P Stipano to moderate "Digital identity: The next gen of CIP" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference