Judge Temporarily Blocks Colorado DIDMCA Opt Out Law

Last week, U.S. District Court Judge Daniel Domenico issued a ruling temporarily stopping legislation passed last year that would opt the state out of the 1980 Depository Institutions Deregulation and Monetary Control Act (DIDMCA)’s interest export rate provisions. In practice, the opt-out legislation was intended to block loans that violate Colorado’s interest rate caps by preventing fintech companies from partnering with banks in other states without interest rate caps and offering loans to Coloradans under the laws of the bank’s home state.

After Colorado passed the opt-out legislation, a coalition of industry trade groups filed a lawsuit challenging it (NAIB, et al v. Weiser, et al). Judge Domenico’s recent ruling in the case was a preliminary injunction saying that Colorado cannot enforce its interest rate and fee limits “with respect to any loan made by the plaintiff’s members, to the extent that the loan is not ‘made in’ Colorado and the applicable interest rate in Section 1831d(a) exceeds the rate that would otherwise be permitted.”

“And the plaintiffs have presented evidence that absent an injunction, they will be forced to stop offering their loan products altogether to certain Colorado consumers, and once gone, those customers — and their goodwill along with that of the banks’ business partners — may be gone forever,” Domenico wrote in an order, according to Colorado Politics. 

The bill was set to take full effect on July 1. The state argued that any loan made to a resident of the state is considered being “made in” the state. However, Domenico clarified that where a loan is made and which state’s laws apply to the lender “depends on where the lender performs its loan-making functions, not the borrower’s location,” according to Bloomberg Law.