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 their innocence.
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.
