On June 18, a Colorado federal court granted the plaintiff trade groups’ motion for a preliminary injunction, effectively halting the enforcement of Colorado’s H.B. 1229 with respect to loans made by out-of-state state-chartered banks.

As discussed here, in June 2023, Colorado passed H.B. 1229, limiting certain charges on consumer loans and simultaneously opting Colorado out of sections 521-523 of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). Section 521, codified as Section 27(a) of the Federal Deposit Insurance Act (Section 27(a)), empowers state banks to charge the interest allowed by the state where they are located, regardless of where the borrower is located and regardless of conflicting state law (i.e., “export” their home state’s interest-rate authority). Sections 522 and 523 provide the same authority to insured state and federal savings associations and state credit unions. However, § 525 of DIDMCA (Section 525) enables states to opt out of Sections 521-523 with respect to loans “made in” the opt-out state.

In March 2024, as discussed here, three trade organizations filed a complaint in Colorado federal court challenging H.B. 1229. The trade organizations argued that, under federal law, a loan is only “made in” a state other than the state where a bank is chartered when all the key functions associated with originating the loan — including the bank’s decision to lend, communication of the loan approval decision, and disbursal of loan proceeds — occur in that other state.

In its order, the court seemingly agreed with the plaintiffs that the determination of where a loan is “made” under Section 27(a) depends on where the lender is located and performs its loan-making functions, not the borrower’s location. According to the court: “[T]he plain and ordinary answer to the question of who ‘makes’ a loan is the bank, not the borrower. It follows, then, that the answer to the question of where a loan is ‘made’ depends on the location of the bank, and where the bank takes certain actions, but not on the location of the borrower who ‘obtains’ or ‘receives’ the loan.”

Accordingly, the court enjoined Colorado Attorney General Philip J. Weiser and Colorado Uniform Consumer Credit Code Administrator Martha Fulford from enforcing Colorado’s lower interest-rate caps on loans made by state-chartered banks located outside Colorado. Until dissolved or replaced by a permanent injunction, the preliminary injunction prevents Colorado from enforcing its interest rates with respect to any loan made by the plaintiffs’ members, to the extent that the applicable interest rate under Section 27(a) exceeds the rate that otherwise would be permitted and the loan is made by an out-of-state bank, regardless of the location or residence of the borrower.

Troutman Pepper will continue to monitor this case closely and provide updates on any further developments.