Lender Groups Sue To Block Oregon Rate Cap
By CU Today Staff —
WASHINGTON—Three financial-services trade groups have sued to block Oregon's new law limiting the ability of out-of-state state-chartered banks to charge interest rates above Oregon's 36% cap, opening a new legal battle over whether states can restrict federally authorized interest-rate exportation used in many online lending programs.
The lawsuit, filed by the National Association of Industrial Bankers, the Online Lenders Alliance and the American Financial Services Association, challenges Oregon House Bill 4116, which took effect June 5, the Consumer Finance Monitor reported.
The dispute centers on the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA), which generally allows state-chartered banks to charge interest rates permitted in their home states when lending across state lines. Oregon exercised its authority under the law to opt out of that framework for certain consumer loans and extended the measure to loans of $50,000 or less made to Oregon residents, arguing the move closes a loophole that allowed some online lenders to charge annual percentage rates well above the state's cap. State regulators said they identified more than 31,000 loans totaling at least $61 million that carried rates exceeding Oregon's limit, the Consumer Finance Monitor said.
The trade groups argue Oregon exceeded its authority under DIDMCA by attempting to regulate loans originated by banks located in other states and operating under their home-state laws. The complaint contends the law is preempted by federal banking statutes and also violates the Constitution's dormant Commerce Clause by applying Oregon law to certain transactions occurring outside the state. Industry groups further argue the measure undermines the parity Congress sought to establish between state-chartered and national banks, because national banks retain separate federal authority to export interest rates nationwide.
The case is the latest chapter in a broader national fight over state efforts to curb bank-fintech lending partnerships and high-cost online credit. Oregon joins Colorado, Iowa and Puerto Rico among jurisdictions that have adopted DIDMCA opt-outs, while related litigation over Colorado's law remains pending before the 10th U.S. Circuit Court of Appeals. Legal observers say the Oregon case could help determine how far states can go in restricting interstate lending by state-chartered banks and may have significant implications for fintech-bank partnerships and consumer-credit availability nationwide, the Consumer Finance Monitor said.
Originally reported by CU Today.