In Madden v. Midland Funding, LLC, — F.3d —-, 2015 WL 2435657 (2d Cir. 2015), the Court of Appeals for the Second Circuit found that the NBA did not pre-empt New York state usury claim arising out of debt collector’s attempt to collect the credit card issuer’s interest that was permissible as to the credit card issuer out of Delaware but would be usurious for non-National Banks in New York.
This putative class action alleges violations of the Fair Debt Collection Practices Act (“FDCPA”) and New York’s usury law. The proposed class representative, Saliha Madden, alleges that the defendants violated the FDCPA by charging and attempting to collect interest at a rate higher than that permitted under the law of her home state, which is New York. The defendants contend that Madden’s claims fail as a matter of law for two reasons: (1) state-law usury claims and FDCPA claims predicated on state-law violations against a national bank’s assignees, such as the defendants here, are preempted by the National Bank Act (“NBA”), and (2) the agreement governing Madden’s debt requires the application of Delaware law, under which the interest charged is permissible. . . .In 2005, Saliha Madden, a resident of New York, opened a Bank of America (“BoA”) credit card account. BoA is a national bank.1 The account was governed by a document she received from BoA titled “Cardholder Agreement.” The following year, BoA’s credit card program was consolidated into another national bank, FIA Card Services, N.A. (“FIA”). Contemporaneously with the transfer to FIA, the account’s terms and conditions were amended upon receipt by Madden of a document titled “Change In Terms,” which contained a Delaware choice-of-law clause. Madden owed approximately $5,000 on her credit card account and in 2008, FIA “charged-off” her account (i.e., wrote off her debt as uncollectable). FIA then sold Madden’s debt to Defendant–Appellee Midland Funding, LLC (“Midland Funding”), a debt purchaser. Midland Credit Management, Inc. (“Midland Credit”), the other defendant in this case, is an affiliate of Midland Funding that services Midland Funding’s consumer debt accounts. Neither defendant is a national bank. Upon Midland Funding’s acquisition of Madden’s debt, neither FIA nor BoA possessed any further interest in the account. In November 2010, Midland Credit sent Madden a letter seeking to collect payment on her debt and stating that an interest rate of 27% per year applied. . . .Madden argues on appeal that the District Court erred in holding that NBA preemption bars her state-law usury claims. We agree. Because 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, we reverse the District Court’s holding that the NBA preempts Madden’s claims and accordingly vacate the judgment of the District Court. . . The Office of the Comptroller of the Currency (“OCC”), “a federal agency that charters, regulates, and supervises all national banks,” Town of Babylon v. Fed. Hous. Fin. Agency, 699 F.3d 221, 224 n. 2 (2d Cir.2012), has made clear that third-party debt buyers are distinct from agents or subsidiaries of a national bank, see OCC Bulletin 2014–37, Risk Management Guidance (Aug. 4, 2014), available at http://www.occ.gov/news–issuances/bulletins/2014/bulletin–2014–37.html (“Banks may pursue collection of delinquent accounts by (1) handling the collections internally, (2) using third parties as agents in collecting the debt, or (3) selling the debt to debt buyers for a fee.”). In fact, it is precisely because national banks do not exercise control over third-party debt buyers that the OCC issued guidance regarding how national banks should manage the risk associated with selling consumer debt to third parties. See id. In most cases in which NBA preemption has been applied to a non-national bank entity, the entity has exercised the powers of a national bank—i.e., has acted on behalf of a national bank in carrying out the national bank’s business. This is not the case here. The defendants did not act on behalf of BoA or FIA in attempting to collect on Madden’s debt. The defendants acted solely on their own behalves, as the owners of the debt. No other mechanism appears on these facts by which applying state usury laws to the third-party debt buyers would significantly interfere with either national bank’s ability to exercise its powers under the NBA. See Barnett Bank, 517 U.S. at 33. Rather, such application would “limit[ ] only activities of the third party which are otherwise subject to state control,” SPGGC, LLC v. Blumenthal, 505 F.3d 183, 191 (2d Cir.2007), and which are not protected by federal banking law or subject to OCC oversight.
Accordingly, the Second Circuit found that the FDCPA claim must be reinstated, and the District Court must decide whether New York’s usury laws or the Delaware choice of law provision in the credit card contract controlled as to the third party debt buyer.
The defendants contend that the Delaware choice-of-law provision contained in the Change In Terms precludes Madden’s New York usury claims.4 Although raised below, the District Court did not reach this issue in ruling on the defendants’ motion for summary judgment. Subsequently, in the Stipulation for Entry of Judgment, the parties resolved in the defendants’ favor the dispute as to whether Madden was bound by the Change In Terms. The parties appear to agree that if Delaware law applies, the rate the defendants charged Madden was permissible. ¶ We do not decide the choice-of-law issue here, but instead leave it for the District Court to address in the first instance. ¶ . . . Madden also contends that by attempting to collect interest at a rate higher than allowed by New York law, the defendants falsely represented the amount to which they were legally entitled in violation of the FDCPA, 15 U.S.C. §§ 1692e(2)(A), (5), (10), 1692f(1). The District Court denied the defendants’ motion for summary judgment on this claim for two reasons. First, it held that there was a genuine dispute of material fact as to whether the defendants are assignees of FIA; if they are, it reasoned, Madden’s FDCPA claim would fail because state usury laws—the alleged violation of which provide the basis for Madden’s FDCPA claim—do not apply to assignees of a national bank. The parties subsequently stipulated “that FIA assigned Defendants Ms. Madden’s account,” App’x at 138, and the District Court, in accord with its prior ruling, entered judgment for the defendants. Because this analysis was predicated on the District Court’s erroneous holding that the defendants receive the same protections under the NBA as do national banks, we find that it is equally flawed. Second, the District Court held that if Madden received the Cardholder Agreement and Change In Terms, a fact to which the parties later stipulated, any FDCPA claim of false representation or unfair practice would fail because the agreement allowed for the interest rate applied by the defendants. This conclusion is premised on an assumption that Delaware law, rather than New York law, applies, an issue the District Court did not reach. If New York’s usury law applies notwithstanding the Delaware choice-of-law clause, the defendants may have made a false representation or engaged in an unfair practice insofar as their collection letter to Madden stated that they were legally entitled to charge interest in excess of that permitted by New York law. Thus, the District Court may need to revisit this conclusion after deciding whether Delaware or New York law applies. Because the District Court’s analysis of the FDCPA claim was based on an erroneous NBA preemption finding and a premature assumption that Delaware law applies, we vacate the District Court’s judgment as to this claim.