In the last two weeks, several amicus briefs were filed in the Tenth Circuit in the ongoing litigation concerning Colorado’s opt-out from the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). Troutman Pepper submitted a brief on behalf of all 50 state bankers associations (state bankers), plus Washington, D.C., supporting the district court’s granting of a preliminary injunction preventing Colorado from enforcing its overly broad and unlawful interpretation of DIDMCA’s opt-out. The Republican attorneys general from a dozen states, including Texas, Utah, Georgia, and Ohio also filed an amicus brief in support of the industry plaintiffs-appellees. This litigation centers on the enforcement of Colorado’s H.B. 1229 against state-chartered banks located outside of Colorado who make loans to Colorado borrowers.
Background
As we discussed here, in June 2023, Colorado passed H.B. 1229, which limits certain charges on consumer loans and opts Colorado out of Sections 521-523 of DIDMCA. These sections allow state banks to charge interest rates permitted by their home state, regardless of the borrower’s location. However, Section 525 of DIDMCA allows states to opt-out of these provisions for loans “made in” the opt-out state. In March 2024, three trade organizations filed a complaint challenging H.B. 1229, arguing that a loan is “made” where the lender is located or where it performs its loan-making functions, not where the borrower is located.
In June 2024, a Colorado federal court granted a preliminary injunction, halting the enforcement of H.B. 1229 with respect to loans made by out-of-state chartered banks. The court agreed with the plaintiffs that the determination of where a loan is “made” depends on the lender’s location and actions, not the borrower’s location.
State Bankers Associations Amici Curiae Brief
We are proud to highlight Troutman Pepper’s brief supporting the plaintiffs-appellees. The state bankers’ brief argues for the affirmance of the preliminary injunction. We emphasized the historical context of DIDMCA, the importance of regulatory stability, and the benefits of the dual banking system in promoting competition, innovation, and access to credit.
Our brief detailed DIDMCA’s historical context, noting that, “Congress enacted DIDMCA to level the playing field between national banks and state-chartered banks by giving state banks the ability to charge the same interest rates as national banks under the National Bank Act.” It further explained that “interstate banking for state-chartered banks, including interstate consumer lending, developed slowly after DIDMCA, and only expanded into the system we know today following the enactment of [the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994].” Thus, when Congress passed DIDMCA fourteen years earlier in 1980, it “never contemplated — much less intended — allowing opt-out states to interfere with banking activities regulated by another state.”
We also highlighted the benefits of the dual banking system: “The dual banking system promotes competition and innovation. State-chartered banks continue to play an important role in the banking system and the economy, as they did before DIDMCA, by increasing innovation, expanding availability of credit, and reducing systemic risk.”
The state bankers’ brief concluded by warning that Colorado’s opt-out would disrupt comity among the states and create confusion, stating, “Colorado’s interpretation of the DIDMCA opt-out threatens to disrupt this regulatory balance and interfere with each state’s authority to regulate its own state-chartered banks engaging in lending with Colorado borrowers.”
Attorneys General Amicus Brief
On November 25, Republican attorneys general from a dozen states, including Texas, Utah, Georgia, and Ohio, filed an amicus brief defending the preliminary injunction. They argued that Colorado’s law could undermine the dual banking system by placing state-chartered banks at a competitive disadvantage to national banks. The brief emphasized that allowing Colorado’s law to take effect could incentivize state-chartered banks to convert to federal charters, diminishing the role of state regulation in the financial sector.
The attorneys general stated, “Colorado law now discriminates against state-chartered institutions and upsets the balance Congress sought to protect. That’s because federally-chartered financial institutions are unaffected by the law. So federal lenders continue to lend to Colorado consumers at whatever rate is permitted by the lender’s home state and federal law, regardless of Colorado law. But state-chartered institutions cannot. This overt discrimination squarely violates the intent of DIDMCA.”
Conclusion
The Tenth Circuit’s decision in this case could have significant implications for the dual banking system and the regulatory landscape for state-chartered banks. We will continue to monitor this case closely and provide updates on any further developments.