Interest Rate Exportation Under Attack Part I

Consumer Finance Monitor

The 1978 landmark opinion in Marquette National Bank v. First of Omaha Service Corp held that under the National Bank Act, a national bank has the right to export the interest rate authorized by the state where the bank is located to borrowers located elsewhere. Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 ("DIDMCA") conferred equivalent rate exportation powers on state-chartered, FDIC-insured banks.

These interest rate exportation powers (which also extend to certain fees), coupled with technological advances in recent years and the advent of “bank-model” and “banking as a service” (BaaS) programs, have created a robust, competitive smorgasbord of credit products for consumers.

However, rate exportation, and the programs it enables, increasingly are subject to challenges from a variety of sources.

In this two-part episode, which repurposes portions of a recent webinar, we describe the nature of these attacks, the defenses being deployed by the industry, and who is winning these contests so far, and address what the future may hold for rate exportation.

In Part I, we first review a brief history of rate exportation, and explore the three primary theories used to attack rate exportation. We then focus on current and pending state laws and bills seeking to “opt out” of DIDMCA’s rate exportation authority. Next, we turn to the current court battle being waged in Colorado, where three trade groups recently won a preliminary injunction against enforcement of Colorado’s recently adopted opt-out legislation, and discuss the decision and its ramifications, including potential impacts on existing and pending opt-out legislation in other states, implications for nonmembers of the three trade group plaintiffs, and the prospects for enforcement in Colorado and other opt-out states by the FDIC based on the position (contrary to the preliminary injunction) advocated in its amicus brief.

Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, moderates episode, joined by Ronald Vaske, a Partner in the Group, and Mindy Harris, Of Counsel in the Group.