ICBA Backs Bill Alleviating Harm from Preemption Ruling

Source: Independent Community Bankers Association (ICBA)

Washington, D.C. - October 6, 2017 (The Ponder News) -- ICBA and other organizations expressed support for legislation to codify the longstanding legal principle that if a loan is valid when it is made with respect to its interest rate, then it does not become invalid or unenforceable when assigned to another party.

The “valid-when-made” doctrine was undermined by the Madden v. Midland Funding case, in which the Second Circuit decided that state usury laws apply to debt purchased from a national bank.

The Protecting Consumers’ Access to Credit Act of 2017 (S. 1642 and H.R. 3299) would alleviate the uncertainty that ruling injected into the secondary markets for consumer and commercial credit, which has resulted in increased costs and decreased competition.

The bill was introduced by Sens. Pat Toomey (R-Pa.) and Mark Warner (D-Va.) and Reps. Patrick McHenry (R-N.C.) and Gregory Meeks (D-N.Y.).

ICBA has long supported the bill and disagrees with the Second Circuit ruling, arguing in a 2015 amicus brief that the decision conflicts with established precedent that preemption rights are not extinguished when banks sell or assign loans to another party.