Madden Fix Bill Passes House, Faces Uncertain Fate in Senate

By: Zachary K. Dunn

The United States House of Representatives passed H.R. 3299, commonly known as the “Madden fix” bill, by a vote of 245-171 on February 14, 2018. The bill, which is officially entitled “Protecting Consumers’ Access to Credit Act of 2017,” is a response to the Second Circuit’s decision in Madden v. Midland Funding, LLC, 786 F.3d 246 (2nd Cir. 2015), cert denied, ___ U.S. ___, 136 S.Ct. 2505 (2016).

Under the National Bank Act, 12 U.S.C. § 85, nationally chartered banks are permitted to charge interest at the rate allowed by the laws of the State where the bank is located. In Madden, the Second Circuit held that a third-party debt buyer, after purchasing the loan from a national bank, is not permitted to charge the same rate of interest on the loan that the nationally chartered bank is permitted to charge. The Court ruled that allowing third-party debt buyers to charge the same amount of interest would be an “overly broad application” of the Act. This decision, and the Supreme Court’s refusal to weigh in on the issue, lead to uncertainties in the secondary loan market.

Seeking to ameliorate this problem, H.R. 3299 would add the following language to 12 U.S.C. § 85:

A loan that is valid when made as to its maximum rate of interest in accordance with this section shall remain valid with respect to such rate regardless of whether the loan is subsequently sold, assigned, or otherwise transferred to a third party, and may be enforced by such third party notwithstanding any State law to the contrary.

If enacted, this measure would eliminate the uncertainties created by Madden and make clear that a third-party debt buyer may charge the same rate of interest that the nationally chartered bank may charge. The House passed H.R. 3299 mostly along partisan lines, which raises the question of whether it can reach the 60 vote threshold in the Senate. After being passed by the House, the bill was received by the Senate and referred to the Senate Banking, Housing, and Urban Affairs Committee. We will keep you updated as this important piece of legislation moves its way through Congress.

Zachary Dunn is an attorney practicing in Smith Debnam's Consumer Financial Services Litigation and Compliance Group