In an amicus curiae brief filed with the Supreme Court of the United States (SCOTUS) on May 24, 2016, the Office of the Solicitor General of the United States (SG) made clear its disagreement with the Second Circuit’s decision in Madden, while nevertheless urging the SCOTUS to deny certiorari, citing deficiencies in the case and the absence of a split among the US Courts of Appeals in the various circuits. The brief was submitted, jointly with the Office of the Comptroller of the Currency, in response to a SCOTUS order inviting the SG to express its views.
Under Section 85 of the National Bank Act (NBA), a national bank may impose finance charges and late fees in accordance with the usury laws of the state where such bank is located. In Madden v. Midland Funding, LLC, the US Court of Appeals for the Second Circuit held that the preemption afforded to national banks by the NBA ceased to apply to certain defaulted credit card accounts originated by Bank of America, N.A. after they were sold to Midland Funding, LLC (Midland), a nonbank. On November 10, 2015, Midland filed a Petition for a Writ of Certiorari with the SCOTUS asking the court to address whether the NBA continues to have preemptive effect after the originating bank assigns the loan to another entity. On March 21, 2016, the SCOTUS invited the SG to submit a brief expressing the views of the United States, which the SG filed on May 24, 2016. In addition to the SG’s brief, amicus briefs have been filed by various industry groups, and counsel for the plaintiff filed its final brief in opposition on February 12, 2016.
Solicitor General’s Views on the Madden Decision
The SG contends that the Second Circuit erred in its unduly narrow interpretation of both the NBA and the conflict preemption doctrine. In particular, the SG states that:
- in holding that the NBA’s preemptive effect ceased to apply when the plaintiff’s loan was sold to Midland, the Second Circuit:
- failed to interpret Section 85 of the NBA in a manner consistent with the long-established common-law “valid-when-made” doctrine—e., that the non‑usurious character of a debt remains unaffected by its transfer; and
- failed to recognize that the sale of loans is an integral part of banking practice—and, in effect, limiting the NBA’s preemptive effect following an assignment would prevent the assigning bank from fully exercising its statutory powers to originate loans at the interest rate allowed by the laws of its home state; and
- the Second Circuit adopted an unduly narrow concept of conflict preemption in holding that (1) applying the usury laws of a state other than the national bank’s home state following an assignment of the loan would not prohibit all loan sales, but, rather, would merely decrease the amount that a national bank could charge for its consumer debt in certain states, and (2) therefore, such a result would not “significantly” interfere with the exercise of national bank powers (and, as a result, fall within the scope of the federal preemption afforded by the NBA).
Reasons for Recommending the Denial of Certiorari
Notwithstanding its disagreement, in substance, with the Second Circuit’s decision, the SG recommended that the SCOTUS deny Midland’s petition for two reasons:
- First, the SG contends that there is no conflict among the US Courts of Appeals in the various circuits on the question of whether the NBA continues to have preemptive effect after the originating bank assigns the loan to another entity, distinguishing on their facts the apparently contrary decisions in the Fifth Circuit and Eighth Circuit; and
- Second, the SG asserts that Madden would be an inappropriate vehicle for resolving such question, citing (1) deficiencies in Midland’s arguments regarding federal preemption in the lower courts and (2) the possibility of a decision in favor of Midland on other grounds.
 While Madden considered the application of federal preemption under the NBA with respect to national banks, the outcome also would be expected to affect the preemption afforded to federally insured state‑chartered banks under the FDIA. See note 2 above.
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