By Chris Bruce
May 24 — The U.S. Supreme Court should not review a federal appeals court ruling that eases interest-rate challenges by consumers, even though the ruling was wrong, the U.S. Solicitor General said in a brief.
The government's 21-page brief dims the chances that the Supreme Court will take the case, which seeks review of a May 2015 ruling by the U.S. Court of Appeals for the Second Circuit that said the National Bank Act doesn't preempt state-law usury claims brought by Saliha Madden (100 BBD, 5/26/15).
She brought a putative class case that said Midland Funding violated the Fair Debt Collection Practices Act by trying to collect on a loan with rates illegal under New York law.
“The Court tends to defer to the government in preemption cases,” said Deepak Gupta, founding principal of Gupta Wessler in Washington, D.C., who specializes in U.S. Supreme Court and appellate litigation on constitutional law, class actions, access to the civil justice system, and consumers’ and workers’ rights. “In fact, that's the single most relevant factor in predicting outcomes on preemption,” he told Bloomberg BNA May 24.
The Second Circuit was wrong, according to the government, but that doesn't mean the justices must take the case, the brief said, rejecting Midland Funding's argument that the justices should address the preemption question.
“The court of appeals erred in holding that state usury laws may validly prohibit a national bank’s assignee from enforcing the interest-rate term of a debt agreement that was valid under the law of the State in which the national bank is located,” the brief said. “But there is no circuit split on the question presented; the parties did not present key aspects of the preemption analysis to the courts below; and petitioners may still prevail on remand despite the error in the court of appeals’ interlocutory decision. For all of those reasons, further review is not warranted.”
Banking groups urged the court to hear the case, saying the Second Circuit's ruling undermines expectations that national bank-originated loans with interest rates that were valid when made will be able to withstand later challenges.
But the government agreed on that substantive point, saying a national bank’s power to charge a rate authorized by Section 85 of the National Bank Act “includes the power to transfer a loan, including the agreed-upon interest-rate term, to an entity other than a national bank.”
“A national bank’s federal right to charge interest up to the rate allowed by Section 85 would be significantly impaired if the national bank’s assignee could not continue to charge that rate,” the brief said. “Under the long-established `valid-when-made' rule, if the interest-rate term in a bank’s original loan agreement was non-usurious, the loan does not become usurious upon assignment, and so the assignee may lawfully charge interest at the original rate,” the government said.
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