Legal Seminar, Denver, CO

True Lender Doctrine: Interest Rate Exportation

• Federal law permits federally-insured banks to charge interest at the rate allowed by the state in which the bank is “located”. – Section 85 of the National Bank Act (NBA) (national banks); Section 27 of the Federal Deposit Insurance Act (state banks) • Bank is “located” in state where its main office is located or where its branches are located. – Marquette Nat. Bank v. First of Omaha Corp. , 439 U.S. 299 (1978) (national banks); FDIC General Counsel Opinion No. 11 (1998) (state banks) • Section 86 of the NBA provides complete preemption of state law usury claims. – Beneficial Nat’l Bank v. Anderson , 539 U.S. 1 (2003) (no state law usury claim available against a national bank) • True lender doctrine tests whether exportation continues to apply after loan assignment to/purchase by nonbank affiliates and nonbank third parties. – Tested in jurisdictional contexts (complete preemption) and non-jurisdictional contexts (ordinary preemption)

For Discussion Purposes Only

True Lender Doctrine: Origins

• In the early 2000s, incipient version of true lender doctrine applied in a series of “rent-a- charter” cases involving partnerships between banks and payday lenders. – e.g., Colorado ex rel. Salazar v. Ace Cash Express, Inc. , 188 F. Supp. 2d 1282 (D. Colo. 2002)(complete preemption under Section 86 does not apply to state actions against nonbanks); – Cf. Krispin v. May Department Stores , 218 F.3d 919 (8th Cir. 2000) • In 2004, Georgia enacts law to require all lender that offered small dollar loans to comply with state usury limits – Exempted out-of-state banks, but specifically covered “de facto lenders”, that is, “purported agent[s]” that hold, acquire, or maintain “a predominant economic interest in the revenues generated by the loan.” • Spitzer v. Cty. Bank of Rehoboth Beach , 846 N.Y.S.2d 436 (App. Div. 2007) – Court refused to adopt non-ministerial functions test developed by the OCC to determine where a loan is made in interstate branching context. – “An examination of the totality of the circumstances surrounding this type of business association must be used to determine who is the true lender , with the key factor being who had the predominant economic interest in the transactions.”

For Discussion Purposes Only