New Senate Bill Could Undo Controversial Debt Collection Ruling

Senator Mark Warner (D- VA) introduced a new bill that would allow a third party that purchased or otherwise obtained a debt from a bank to continue charging during collection the interest rates of the bank’s home state. The bill contains similar language to provisions in the Financial CHOICE Act and the most recent appropriations proposal.

The bill is intended to overturn the recent Second Circuit decision in Madden v. Midland Funding. In Madden, a bank sold an uncollected credit card debt to a third party. That third party attempted to continue charging an interest rate of 27% on the amount owed- the same rate previously charged by the bank creditor. Madden, a resident of New York, claimed that Midland Funding’s attempt to charge 27% violated New York state’s usury limit of 25%. The court ultimately determined that the rate exporting permission for banks under the National Bank Act did not extend to third party purchasers of debt. Sen. Warner’s bill would nullify this decision and reaffirm the doctrine of “valid-when-made,” which transfers loan terms to third party debt purchasers located outside the original creditor’s home state.