Solicitor General Tells Supreme Court Not to Hear Interest-Rate Case
May 24 2016 - 9:10PM
Dow Jones News
WASHINGTON—The Obama administration on Tuesday advised the
Supreme Court not to hear a closely watched case challenging state
caps on interest rates.
The high court in March had invited U.S. Solicitor General
Donald Verrilli to weigh in on the case, Midland Funding LLC v.
Madden, before deciding whether to hear Midland's appeal.
Midland, a debt buyer, is seeking exemption from New York's
state interest-rate cap because it purchased the debt from a
national bank, which only has to comply with the rate cap set by
its home state. Midland bought the debt from a Bank of America
Corp. unit based in Delaware that charged an interest rate slightly
higher than the cap set by New York.
The case is significant because many industry proponents say the
decision last year by the U.S. Court of Appeals for the Second
Circuit that stopped Midland from collecting debt could impair the
ability to sell and securitize debt, and force nonbanks like online
lenders and debt buyers to pull out of states that have lower caps
on interest rates than the debt.
The solicitor general's suggestion likely reinforces advocates
who have supported greater consumer protection through state usury
laws. However, the solicitor general also disagreed with the
appeals court's ruling in that it said the debt owner, or assignee,
has the right to enforce the same interest rate that the bank had
been charging on the debt.
"The court of appeals' decision is incorrect…A national bank's
federal right to charge interest up to the rate allowed by [federal
law] would be significantly impaired if the national bank's
assignee could not continue to charge that rate," the solicitor
general said. The "petitioners may still prevail on remand despite
the error in the court of appeals' interlocutory decision."
The solicitor general sought opinions from agencies including
the Office of the Comptroller of the Currency—the national bank
regulator—and the Justice Department.
Justices often follow the solicitor general's recommendations,
but sometimes the Supreme Court agrees to review cases even when
the Obama administration has urged against doing so. That has
happened in several recent cases, including one involving frozen
funds tied to Iran's central bank.
Write to Rachel Witkowski at rachel.witkowski@wsj.com
(END) Dow Jones Newswires
May 24, 2016 20:55 ET (00:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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