On June 18, U.S. District Court of the District of Colorado granted a motion for preliminary injunction filed by several financial services trade associations, enjoining Colorado from enforcing Colo. Rev. Stat. § 5-13-106 with respect to any loan made by the plaintiffs’ members, to the extent the loan is not “made in” Colorado. As previously covered by InfoBytes, the enjoined provision, contained in Section 3 of Colorado HB 23-1229 and scheduled to become effective on July 1, opted Colorado out of Section 521 of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) which allowed state-chartered banks to export rates of their home state across state borders. Trade groups sued before this law went into effect (covered here), with the FDIC writing a brief in support of the Colorado Attorney General (here).

The court’s decision turned on its interpretation of DIDMCA Section 525, which allowed states to enact laws opting loans “made in” the enacting state out of Section 521, the provision granting insured state banks the same rate exportation authority as national banks. In support of their motion, the plaintiff trade associations argued that loans to Colorado residents by insured state banks located in other states were “made in” the bank’s home state or the state where key loan-making functions occur. Colorado disagreed, contending that a loan was “made in” both the borrower’s state and the state where the lender is located for purposes of applying the DIDMCA opt out provision.

In granting the preliminary injunction, the court found the argument that only a bank “makes” a loan was “more consistent both with the ordinary colloquial understanding of who ‘makes’ a loan, and, more importantly, with how the words ‘make’ and ‘made’ are used consistently throughout the text of the Federal Deposit Insurance Act, including the [DIDMCA] amendments.” The court explained that “the answer to the question of where a loan is ‘made’ depended 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.” Although the court noted that agency interpretations did not address directly how to apply Section 525 of DIDMCA, it found that “[t]o the extent the agency interpretations are helpful, they support the conclusion that in common parlance, a loan is ‘made’ by a bank and therefore where the bank is located and performs its loan-making functions” (italics omitted).

Colorado has 30 days to appeal the district court’s decision to the Tenth Circuit.