On March 25, a coalition of trade groups filed suit in the United States District Court for the District of Colorado, challenging a Colorado law which would have opted the state Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (“DIDMCA”), a federal law enacted to create competitive equality between state-chartered banks and national banks. The law, set to take effect on July 1, 2024, would have subject out-of-state lenders to the state’s rate cap. 

The DIDMCA permits state-chartered banks to lend nationally at the rates allowed in their home states. Out-of-state bank depository institutions, particularly those in bank partnership arrangements, have used the law to make loans to Colorado consumers at rates, in some cases, in excess of the state’s rate cap law. The Colorado bill invokes a rarely utilized federal opt-out provision to allow the state to exclude Colorado from the reach of the DIDMCA, subjecting out-of-state lenders to the state’s rate cap. 

The trade groups’ complaint alleges that the Colorado law exceeds the state’s authority and conflicts with the U.S. Constitution’s supremacy and commerce clauses. Moreover, the trade groups argue that the law could restrict the availability of credit to Colorado consumers, particularly those individuals who have difficulty obtaining credit, and cause fintech lenders to flee the state. This would consequently lead to national banks, who are not subject to the state’s rate cap, to charge higher rates. 

Putting it into Practice: Trade groups have not hesitated in resorting to litigation to slow the spread of financial regulations. While these efforts have been so-far successful against the CFPB, it will be interesting to see how this litigation develops. Moreover, the state of Colorado has a track record of contesting the loan fees levied by out-of-state banking institutions, especially within bank partnership programs. In recent years, Colorado among other states have launched numerous lawsuits against such programs (previously discussed here, here and here).