You may remember in Madden v. Midland Funding, LLC, the United States Court of Appeals ruled that Midland Funding, LLC a non-bank debt buyer, was unable to charge the same usurious rates of interest allowed by banks under the National Bank Act. A class action was brought against Midland for allegedly charging the same rate of interest as FIA Card Services after the debt was sold to Midland.
The court ruled that the usury preemption rule afforded to banks did not extend to non-bank entities like Midland Funding.
Midland Funding first won on this issue in District Court. But the consumer tenaciously appealed to the Second Circuit Court of Appeals, which overturned the District Court on this issue. Midland's attempt to seek full court review in the second circuit was denied. Then Midland filed a writ of certiorari seeking review by the Supreme Court of the United States.
Midland is arguing the "valid when issued" doctrine that would act to legitimatize the interest rate and shield Midland from any state usury claims.
The financial services industry clearly has a strong interest in backing Midland's legal position. Ten financial industry groups have filed amicus briefs weighing in on the issue. They argue that stripping assignees of the same rights as banks to collect interest threatens banks' abilities to securitize and sell off loans.
This is a wildly important legal issue. Stay tuned.