Lender Advocacy Groups Sue Oregon over Interest Rate Limit on Consumer Loans Made by Out-of-State Banks

Lender advocacy groups have sued Oregon, alleging that its statutory 36% interest rate limit on consumer finance loans of $50,000 or less made by state-chartered banks in other states to borrowers who reside in, or are domiciled in, Oregon is preempted by DIDMCA and violates the Constitution’s Dormant Commerce Clause.

DIDMCA allows a state-chartered bank to charge interest at a rate permitted under the laws of the state in which the bank is located.  To facilitate this practice, DIDMCA expressly preempts any contrary interest rate limit imposed by the laws of the state in which the borrower is located.  DIDMCA, however, allows a state to “opt out” of this scheme and implement a lower rate ceiling on loans “made in” the state.  Relatedly, the Dormant Commerce Clause prohibits any state law discriminating against interstate commerce or unduly burdening interstate commerce. 

The Oregon statute prescribes a 36% interest rate limit on certain consumer finance loans.  As relevant here, the statute extends this rate ceiling to consumer finance loans made by state-chartered banks in other states to borrowers who reside in, or are domiciled in, Oregon.  The statute also provides that, when an Oregon resident makes a payment on a consumer finance loan, the transaction is governed by Oregon law, even if both the borrower and the bank are physically located in another state.

A Colorado federal district court previously concluded that, under DIDMCA, a loan is “made” where the bank is located and performs its loan-making functions.  WBK covered that order here.  That order, though, is the subject of a pending appeal.  WBK covered the status of the appeal here.

Relying on the Colorado federal court’s reasoning, the lender groups claim that DIDMCA preempts the Oregon statute because the statute seeks to regulate interest rates on loans made in other states contrary to DIDMCA’s express terms.  Separately, the lender groups claim that the statutory provision governing payments made in another state violates the Dormant Commerce Clause because, under prevailing Supreme Court precedent, a state cannot regulate conduct occurring entirely outside of its borders.

Oregon has yet to file a motion to dismiss or answer responding to the complaint.