Madden v. Midland

Bill Introduced in Congress to Make “Valid When Made” the Law of the Land


Chief Deputy Whip Patrick McHenry (R, NC-10), the Vice Chairman of the House Financial Services Committee, introduced H.R. 5724, the Protecting Consumers’ Access to Credit Act of 2016, which would reaffirm the longstanding legal precedent under the National Bank Act and the Federal Deposit Insurance Act that federal law preempts a loan’s interest if valid when made. The legislation was introduced to address one of the issues raised by the Second Circuit in Madden vs. Midland Funding. Legislation.

Madden Case Timeline


Note:  These are the outcomes we think are most likely based on our experience and study of this matter.  The Supreme Court can, of course, resolve cases in a number of other ways (including summary disposition, vacating and remanding in light of another decision, etc.) that we do not anticipate here, but remain possible.  Finally, the Court can always act in accord with its own preferred timeline.

If you have any questions about or wish to discuss further the Madden v. Midland Funding  case, please contact Robert Loeb (+1 202-339-8475) or Howard Altarescu (+1 212-506-5315) or feel free to reach out to any of your other Orrick contacts.

Case Update: Madden v. Midland Funding

As expected, today, November 10, 2015, Midland Funding filed a petition for a writ of certiorari in the United States Supreme Court, asking the Court to review the Second Circuit’s ruling in Madden v. Midland Funding, that the federal preemption provision of the National Bank Act, 12 U.S.C. § 85, could not be invoked by a non-national bank assignee.  A link to the petition is provided here.  The cert petition advances two primary arguments as to why the Supreme Court should grant review.  First, Midland claims the need for resolution of a split between the Second Circuit, on the one hand, and the Eighth and Fifth Circuits, on the other, concerning the impact of the National Bank Act on assigned loans.  Specifically, Petitioner claims the Madden decision – subjecting non-national bank assignees to state usury laws – conflicts with the Eighth Circuit’s decision in Krispin v. May Department Stores Co., 218 F.3d 919 (8th Cir. 2000), which holds that the preemption inquiry turns on the status of the originating entity and subsequent assignments are irrelevant, and the Fifth Circuit’s decision in FDIC v. Lattimore Land Corp., 656 F.2d 139 (5th Cir. 1981), which also looked to the originator of the debt (albeit in the inverse scenario, where the originator was the non-national bank).

Second, the Petitioner claims the Madden case presents a question of substantial importance, particularly to the financial community.  Midland contends that if left intact, the Second Circuit’s decision will allow states to regulate lending terms when a loan created by a national bank is assigned to a non-national bank entity.  Going one step further, Midland asserts the Second Circuit’s reasoning is all the more troubling because it is equally applicable to loans originated by savings associations and state-chartered federally insured banks.  In turn, Midland contends the decision has serious implications for the secondary markets, as it could render loans originated by national banks and subsequently transferred worthless.  See Pet. 23 n.8 (“the Second Circuit’s decision casts doubt on the viability of online lending marketplaces currently envisioned by the federal government…. The decision “pose[s] an acute risk” to lenders in those marketplaces, because they may be subject to state usury laws based on the vagaries of a particular customer’s location.”).  Ultimately, Midland claims the perilous state of the financial markets in the wake of the Madden decision and the need for uniform lending practices demand immediate Supreme Court intervention.

As previously explained, with anticipated extensions, we do not expect to hear if the Supreme Court is going to take the case until at least February 22, 2016.  Petition.