On July 22, plaintiffs challenging Colorado’s opt-out from DIDMCA’s interest-rate preemption framework completed supplemental en banc briefing before the U.S. Court of Appeals for the 10th Circuit, arguing that DIDMCA’s Section 525 opt-out provision reaches only loans “made” by banks located in the opt-out state, not loans received by borrowers there. As previously covered by InfoBytes, the 10th Circuit granted en banc rehearing on April 2 and directed the parties to brief six questions, including whether the phrase “loans made in such State” is ambiguous and whether a presumption against preemption applies. Oral argument is scheduled for August 18.

In its supplemental opening brief filed May 28, plaintiffs argued that the phrase “loans made in such State” refers only to loans made where the lender bank is located, not where the borrower is located, and that “loans made” is not synonymous with “executed loans.” Plaintiffs contended that Sections 521 and 525 must be read consistently, tying the allowable interest rate and the scope of a state’s opt-out to the same concept: the state where the bank performs its loan-making functions. Plaintiffs also argued that predecessor interest-rate preemption statutes from the 1970s consistently used “made” to refer to the lender’s location, that longstanding regulatory guidance similarly ties the location of a loan to where the bank performs its lending functions, and that no presumption against preemption applies because Section 521 contains an express preemption clause. Plaintiffs further noted that federal regulators have submitted amicus filings supporting their reading of the statute.

In its response brief filed July 8, Colorado argued that DIDMCA’s Section 525 opt-out provision applies to loans in which either the lender or the borrower is located in the opt-out state. The brief reasoned that Congress’s use of different language across the two sections supported its reading: while Section 521 ties the permissible interest rate to “the State… where the bank is located,” Section 525’s use of the different phrase “loans made in such State” signaled that Congress intended a broader scope, since Congress could have simply repeated Section 521’s language if it meant the same thing. Colorado argued that the trade associations’ narrower reading would render the opt-out largely illusory, because it would restrict only Colorado-chartered banks while allowing out-of-state, state-chartered banks to continue exporting their home-state interest rates to Colorado residents. Colorado also pointed to statements by a senator during DIDMCA’s passage that the opt-out provision let “each State” reestablish its usury limitations, and argued that regulatory guidance, including a 1988 FDIC interpretive letter, is conflicting but ultimately supports reading the opt-out to reach loans where either party is located. Colorado further argued that if the phrase were found ambiguous, a presumption against preemption would still favor its position.

In its reply brief filed July 22, plaintiffs countered that a loan is “made” at the bank’s location regardless of where the borrower applies for or receives the loan, and that Colorado’s interpretation would let the state discriminate against out-of-state, state-chartered banks while leaving Colorado borrowers still able to obtain loans from out-of-state national banks at rates above the state’s caps. Plaintiffs also disputed Colorado’s characterization of their reading as producing merely a “partial opt-out,” arguing that Colorado’s own interpretation produces a comparable imbalance because out-of-state national banks would remain free to lend to Colorado residents above the state’s caps regardless of which reading prevails.