Legal Seminar, Denver, CO

Madden v. Midland: Assessing “Valid-When-Made” • Proponents: if interest rate in an original loan agreement is non- usurious, the loan does not become usurious upon assignment – So the assignee may lawfully charge interest at the original rate – Nichols v. Fearson (1833) • Issue in Nichols was whether indorser could raise usury defense against indorsee not whether maker could raise usury defense against indorsee. • Court held only that the maker of a note cannot invoke a usury defense based on an unconnected usurious connection; the maker cannot shelter in the indorser’s usury defense. • But Madden was not attempting invoke rights of BofA/FIA against Midland, rather only arguing that rate was usurious as charged by Midland. • The NBA does not void state usury laws, only stays their application. – The NBA does not render a loan non-usurious, rather attempts to raise a usury defense are estopped as against a national bank.

X

Makes Note

(Non-Usurious)

Z

Y

[ Nichols ]

[ Fearson ]

For Discussion Purposes Only

Madden v. Midland: Legislation • In 2017, “Madden fix” bills were introduced in the House and Senate: the Protecting Consumers Access to Credit Act (H.R. 3299; S. 1642). – Both bills amend the NBA, FDIA, HOLA, and NCUA to provide that bank loans that are valid when made as to their maximum rate of interest in accordance with federal law shall remain valid with respect to that rate regardless of whether a bank has subsequently sold or assigned the loan to a third party.

• Both bills enjoy bipartisan support. – The House version passed the House in February 2018. – The Senate has not schedule further action on the bill.

For Discussion Purposes Only