House Republicans Urge OCC to “Fix” Madden

Republicans on the House Financial Services Committee sent a letter earlier this week to Comptroller Joseph Otting, head of the Office of the Comptroller of the Currency (OCC), urging him to administratively fix “Madden.”

As we have described in earlier blogs, “Madden” refers to a 2011 legal case called Madden v. Midland Funding. In that dispute, a bank sold an uncollected credit card debt to a third party. That third party was Midland Funding, which attempted to continue charging an interest rate of 27 percent on the amount owed, which was the same rate previously charged by the bank creditor. Madden, a resident of New York, claimed that Midland Funding’s attempt to charge 27 percent violated New York state’s usury limit of 25 percent. 

The Second Circuit Court of Appeals ultimately determined that the rate exporting permission for banks under the National Bank Act did not extend to third-party purchasers of debt.

The ruling has been heavily criticized by the financial services sector and even federal regulators. Earlier this month, the Federal Deposit Insurance Corporation (FDIC) and the OCC submitted a joint amicus brief criticizing the Second Circuit ruling, saying that “Madden’s disregard of two centuries of established law – without even addressing such law – is not just wrong: it is unfathomable.”

Earlier this week, House Republicans have officially jumped into the fight. Their letter to the OCC state that the “Madden decision has resulted in a fragmented interpretation of banking law in our country, which threatens bank-fintech partnership that can often provide small businesses and consumers with better access to capital and financing alternatives.”

In addition to criticizing Madden, the letter’s authors also assert that the OCC has the authority to fix Madden by updating its interpretation of the definition of “interest” under the National Bank Act. As such, the letter urges the OCC to make this a priority on their rulemaking agenda. 

In the past, there have been attempts to pass legislation that would reaffirm the “valid-when-made” doctrine. Several bills even passed the House of Representatives in the last Congress when Republicans controlled the chamber, but the bills never made it out of the Senate. 

The OCC has yet to respond to the Congressional Letter.