[co-authors: Stephanie Kozol*, Nick Gouverneur]
On September 20, 13 states and Washington, D.C. joined Colorado in its appeal asking the Tenth Circuit to uphold a state law imposing more restrictive interest rate caps on loans from out-of-state banks to residents, arguing that U.S. District Judge Daniel D. Domenico’s injunction “disrupts [ ] careful Congressional balancing and will allow online lenders to flout usury laws.”
Colorado was sued in March 2024 by three financial services trade associations claiming that H.B. 23-1229 exceeded the state’s authority to impose interest rate and fee caps on loans made to Colorado residents. This measure would cap interest rates and fees on consumer loans when made to Colorado residents, regardless of where the bank was chartered. On June 18, Judge Domenico temporarily enjoined the state of Colorado from enforcing H.B. 23-1229.
The dispute centers around the opt-out provision of the Depository Institutions Deregulation and Monetary Control Act, or DIDMCA. This act caps the interest rates that banks may charge on loans, expressly preempting any lower interest-rate caps that may be imposed by state law. States are allowed to opt out of the application of this statute “with respect to loans made in” that state. The financial services trade groups and the district court have agreed that a loan is “made” where the lender performs its loan-making functions. Colorado, on the other hand, argues that a loan is “made” in Colorado when the borrower is a resident.
Why It Matters
This case is the first to address where a loan is “made” according to DIDMCA’s opt-out provision. A successful appeal by Colorado will significantly strengthen the power of states to regulate interest rate and fee caps, forcing lenders to adjust their rates based on the borrower’s residency.
*Senior Government Relations Manager
