The Supreme Court chose not to review a Second Circuit Court of Appeals
decision indicating that usury laws still apply to debt purchased from
a national association bank. The decision could be costly to lenders who
rely on securitization to sell off debt to non-bank enterprises.
The Second Circuit decision came in
Madden v. Midland Funding, LLC and held that a non-bank entity is not entitled to protections from usury
claims under the National Bank Act (“NBA”) after taking assignment
of debt that was originated by a national bank.
In May 2015, Midland was found accused of violating New York’s usury
law after debt purchased by the company was seen to have interest rates
higher than was acceptable under New York law. Midland Funding, a division
of Encore Capital Group, is facing a class action suit alleging a violation
of the law.
The case addressed the rights of purchasers of debt from a national bank
and their ability to collect interest above that restricted by individual
state usury laws. Under the case, the credit was originated by a national
bank and later assigned to a non-bank debt purchaser. The interest rate
being charged by the debt buyer, Midland Funding, exceeded the debtor’s
home state of New York usury rate.
Midland Funding signed a petition to overturn that decision which found
the firm charging interest rates violating New York’s usury cap,
although the debt was purchased from a national bank. The court denied
their petition, leaving Midland open to receiving penalties from the violations
and possibility of class action.
Saliha Madden sued Midland for charging 27 percent interest on credit card
debt that the company bought from Bank of America and the federal government.
SCOTUS decided with the plaintiff in that case and rejected Midland’s
request to have the decision reviewed.
Encore Capital believes that the Second Circuit misinterpreted established
law in making their decision in the original case. They stated that their
actions “complied with state law” and continue to maintain
Encore issued a statement that said the inability of the high court to
reach a decision is evidence that the lower court’s decision was
misinterpreted, and that they still are unsure of how these rules should apply.
It is not clear how Midland will proceed with regards to the decision,
but at this time, the Supreme Court decided that they should step aside
and allow the lower court’s decision to prevail.
The case is being heard in the Supreme Court of the United States under
case number 15-610, Midland Funding LLC et al. v. Saliha Madden.
Contact Geraci Law Firm at (949) 298-8050 today, or contact
Anthony Geraci directly for more information.