Litigation involving Colorado’s opt-out from the interest exportation provisions of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) has taken an adverse turn for the financial services industry. On November 10, the United States Court of Appeals for the Tenth Circuit issued a ruling reversing a preliminary injunction imposed by the United States District Court for the District of Colorado in June 2024 that prevented enforcement of Colorado’s usury restrictions against parties to the litigation, including any members of various industry association parties—the National Association of Industrial Bankers, American Financial Services Association and American Fintech Council—with respect to loans in which the lender was not located, for interest exportation purposes, in Colorado. Subject to further proceedings, the Tenth Circuit’s ruling re-opens the door for loans originated by state-chartered banks and similar financial institutions to be subject to Colorado usury restrictions when either: (i) the borrower is located in the state; or (ii) subject to certain exceptions, the lender is located in the state, regardless of the location of the borrower. The ruling will become effective, if at all, only after issuance of the Tenth Circuit mandate, which may be stayed pending further appellate proceedings as discussed below.
As addressed in our prior discussion of the Colorado DIDMCA opt-out and related litigation, DIDMCA provides the basis, under federal banking law, for state-chartered, FDIC-insured banks and certain similar financial institutions to “export” the interest-related requirements of their home or, in certain cases, branch office (host) states when lending elsewhere. Both national banks and state-chartered banks have such authority, but DIDMCA conditions state-chartered banks’ authority on the ability of individual states to opt out of the interest exportation regime under 12 U.S.C. § 1831d. Iowa and Puerto Rico have had longstanding opt-outs; certain other states initially opted out but later repealed such opt-outs; and Colorado enacted an opt-out that would have become effective July 1, 2024 but for litigation by industry participants that resulted in the June 2024 preliminary injunction.
Continue Reading DIDMCA Opt-Out Update — Tenth Circuit Reverses Colorado Preliminary Injunction