The State of New York prohibits charging more than 25% interest. You'd think that would be plenty of profit for any lender, but Saliha Madden's creditors (Midland Funding and a sister entity) wanted more. When they sought to collect a higher rate of interest from her, she sued under state and federal law and sought certification of a class action. All of her claims were premised on the 25% cap under New York's usury law. The district court dismissed, holding that law preempted by the National Bank Act.
Last week, the Second Circuit reversed, holding that "[b]ecause neither defendant is a national bank nor a subsidiary or agent of a national bank, or is otherwise acting on behalf of a national bank, and because application of the state law on which Madden’s claim relies would not significantly interfere with any national bank’s ability to exercise its powers under the NBA," there is no preemption here. The reasoning points to an important limitation on this pro-consumer decision: the absence of preemptive effect depends on what type of entity is the creditor. In other words, as the Second Circuit put it, "there is no such thing as a state‐law claim of usury against a national bank" (citation and internal quotation marks omitted), or its subsidiary or agent. Still, it's good to see that state usury laws retain force against some entities.
The Second Circuit's decision in Madden v. Midland Funding is here.