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Abstract: 

In August, the U.S. Court of Appeals for the Second Circuit denied a request for rehearing en banc of its May 2015 decision in the closely watched Madden case, in which the court held that a nonbank purchaser (debt collector) of bank-originated consumer (credit card) loans in New York was not entitled to rely on the original terms of the loan agreement between the bank and consumer in collecting the debt. In particular, the nonbank purchaser defendants could not rely on the federal preemption of state usury laws available to the bank before the loans were sold, primarily because neither defendant was a subsidiary or agent of the originating bank nor was it otherwise acting on that bank’s behalf. This article analyzes the Madden decision and concludes that compelling reasons exist for the U.S. Supreme Court to grant certiorari (if requested) to resolve a circuit split and to clarify the scope of assignee rights going forward in the important loan sale market, a fundamental bedrock of the financial services industry.

Keywords: Madden v. Midland Funding, statutory preemption, usury law, contract enforceability, loan assignees, debt buyers

Affiliations:  1: White & Case LLP; 2: White & Case LLP.