Solicitor General Issues Brief in Madden

In response to the U.S. Supreme Court’s request, the Solicitor General submitted its brief in connection with the petition for certiorari in Madden v. Midland Funding, giving insight into the government’s view of national bank preemption. The brief addresses the question of whether the National Bank Act, which preempts state usury laws regulating the interest a national bank may charge on a loan, continues to have preemptive effect after the national bank has sold or otherwise assigned the loan to another, nonbank entity. The Solicitor General rejected the analysis of the U.S. Court of Appeals for the Second Circuit in Madden, characterizing the appellate court’s conclusion that  applying state usury laws to assignees of national banks does not significantly interfere with the bank’s power to sell its loans as an “unduly crabbed conception of (National Bank Act) preemption.” Although the Solicitor General noted that the Madden decision was incorrect, and that state usury laws should not apply to loans made by national banks, it urged the Supreme Court to reject the petition for certiorari because Madden would be a “poor vehicle for resolution” of the question presented.

Solicitor General Brief in Madden

 

CFPB Issues Title Lending Report

The Consumer Financial Protection Bureau today signaled that it is targeting the title loan business. The CFPB released a report that demonstrates that 20% of borrowers who obtain a single-payment auto title loan have their car or truck seized by their lender when they default. According to the CFPB’s research, lenders renew more than four-in-five of these loans on the due date because borrowers could not otherwise repay the loan. The report examined nearly 3.5 million anonymized, single-payment auto title loan records from nonbank lenders from 2010 through 2013. The CFPB concluded from its study that these auto title loans have issues similar to payday loans, including high rates of consumer reborrowing, which can trigger high costs in fees and interest.

Treasury Issues Online Marketplace Lending White Paper

The U.S. Department of Treasury issued its much-anticipated marketplace lending white paper. The white paper, Opportunities and Challenges in Online Marketplace Lending, makes several recommendations to encourage safe growth and access to credit through the continued developments of online marketplace lending, including:

1. Support for more robust small business borrower protections and effective oversight;

2.  Ensuring a sound borrower experience and back-end operations;

3.  Promotion of a transparent marketplace for borrowers and investors;

4.  Expanding access to credit through partnerships that ensure safe and affordable credit;

5. Supporting the expansion of safe and affordable credit through access to government-held data; and

6.  Facilitate interagency coordination through the creation of a standing working group for online marketplace lending.

Treasury consulted with staff from other agencies including the Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System (FRB), Federal Trade Commission (FTC), Office of Comptroller of the Currency (OCC), Small Business Administration (SBA), and Securities and Exchange Commission (SEC).

The white paper is available online here.

Forum Selection Clause Upheld in the 7th Circuit

The extension of financing to small business has undergone something of a revolution in the last few years. With the growth of Independent Sales Organizations and the advent of online lending, more and more small businesses are obtaining credit from alternative finance sources. Many of this alternative financiers operate with certain contractual clauses hard-baked into their merchant-facing agreements. A recent U.S. Court of Appeals decision sheds light on one clause commonly found in these agreements – the forum selection clause.

A forum selection clause, although anathema in a consumer financing agreement, is fairly common in a commercial agreement. The clause binds the parties to face lawsuit (or bring lawsuit) in a specific court. For small business financiers with a nationwide footprint, the forum selected is usually one that is convenient to them, but inconvenient to merchants who do not happen to reside in the same location. Forum selection clauses allow small business financiers to obtain consistency in the enforcement of judgments and certainty of processes necessary to file litigation. Forum selection clauses are generally not prohibited in a commercial setting. Continue reading “Forum Selection Clause Upheld in the 7th Circuit”