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Madden Development Could Further Implicate Federal Preemption Doctrine for Secondary Loan Market and Fate of “Valid-When-Made” Principle

Journal of Taxation and Regulation of Financial Institutions
June 2016
Banks and marketplace lenders have been tracking the aftermath of the Second Circuit’s May 2015 decision in Madden v. Midland Funding, LLC. A petition for writ of certiorari has been pending before the U.S. Supreme Court since November 10, 2015, and the U.S. Solicitor General recently provided an opinion on whether the Court should review the Second Circuit’s holding that an assignee of consumer (credit card) loans originated by a national bank could not invoke federal preemption pursuant to the National Bank Act to defend a state law usury claim under the valid-when-made principle. Although the Solicitor General disagreed with the Second Circuit, reaffirming both the valid-when-made principle and the power of non-bank loan assignees to charge interest at the rate originally agreed upon by the national bank assignor and the borrower, it nevertheless recommended that the Court deny certiorari, thus extending a period of uncertainty in the secondary loan market.