Colorado Approves DIDMCA Opt-Out, Raising Concerns for Consumer Credit Access
Earlier this month, the Colorado legislature voted to approve HB23-1229, which would opt the State out of Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (“DIDMCA”), a federal law enacted to create competitive equality between state-chartered banks and national banks. Section 521 gives federally insured banks, state credit unions, and state savings institutions the ability to export the interest permitted under their home state laws to borrowers in other states notwithstanding any interest limitations in the borrower’s state.
If enacted, HB23-1229 could require out-of-state banks and credit unions to follow Colorado’s interest rate and fee restrictions on consumer loans to Colorado residents if the loans are deemed to be made in Colorado. An amendment to HB23-1229 added in late April would also except certain specifically defined “General Purpose Credit Cards” from the Colorado Uniform Consumer Credit Code limits on finance charges and fees.
Colorado Governor Jared Polis is expected to sign HB23-1229 into law in the coming weeks. If enacted, HB23-1229 would take effect on July 1, 2024, and Colorado would join Iowa and Puerto Rico as a jurisdiction where out-of-state depository institutions may not be able to rely on federal interest rate preemption to charge interest on credit products.
Putting it into Practice: Colorado has a history of challenging loan charges assessed by out-of-state banks depository institutions, particularly in bank partnership programs. For example, Colorado Attorney General has initiated several lawsuits in recent years against bank partnership programs, arguing that federal interest rate preemption could not be utilized in the programs because the bank was not the “true lender” of the loans (see previous blog posts here, here, and here detailing attempts to crack down on “true lender” schemes by other states). Thus, it appears that the interstate legislative and regulatory focus on limiting the ability of bank partnerships to evade state interest rate caps is continuing to sharpen. Accordingly, both federally insured banks and state chartered depository institutions, as well as their nonbank partners, should be vigilant with respect to changes in the legal landscape in order to ensure compliance and minimize the risk of becoming the target of an enforcement action.