November 18, 2019

November 18, 2019

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Marketplace Lending Update #7: This and That

There have been a handful of recent marketplace lending developments that indicate that the legal uncertainties in the post-Madden world are not going away anytime soon.

No Deposits? No Deal

On October 21, 2019, Judge Victor Marrero of the Southern District of New York set aside the OCC’s regulation that would have allowed national bank charters to be issued to non-depository lenders. Section 5.20(e)(1) of the OCC regulations authorizes the OCC to grant special purpose charters to an entity that “limits its activities to fiduciary activities or to any other activity within the business of banking.” In July 2018, the OCC had announced it would rely on Section 5.20(e)(1) to issue national bank charters to nondepository fintech lenders. In striking down the OCC’s interpretation of Section 5.20(e)(1), Judge Marrero reasoned that the National Bank Act “unambiguously requires that, absent a statutory provision to the contrary, only depository institutions are eligible to receive national bank charters from the OCC.” While the ruling comes as no surprise, given his May 2, 2019 order rejecting the OCC’s motion to dismiss on a similar basis, it represents a significant setback to the OCC’s fintech initiative.1

Kabbage Heads to Court (Again)

Non-bank marketplace lender Kabbage joins the growing number of online lenders who are defending Madden and “true lender” claims in New York’s federal courts. Unlike prior lawsuits, such as those recently filed against Capital One and Chase Bank,2 the putative class action against Kabbage targets small business loans, not credit card or other consumer loans. And the plaintiffs in Kabbage break new ground by bringing RICO and RICO-conspiracy claims against Kabbage’s officers.

OCC and FDIC Criticize Madden

The OCC and the FDIC recently asserted that Madden v. Midland Funding3 was wrongly decided, the first clear statement on the matter by the FDIC and the first by the OCC since 2016, when it called Madden “incorrect” at the certiorari stage but nevertheless recommended against the Supreme Court taking the case. The District of Colorado, in In re: Rent-Rite Super Kegs West Ltd.,4 is passing judgment on whether the bankruptcy court below properly upheld the valid-when-made doctrine, and in so doing “respectfully disagree[d] with Madden.”5 The OCC and FDIC filed an amicus brief in support of affirming the bankruptcy court’s decision, arguing that “Madden’s disregard of two centuries of established law—without even addressing such law—is not just wrong: it is unfathomable.”6

We will continue to monitor these marketplace lending issues and provide further updates as appropriate.


1   For further analysis of Judge Marrero’s reasoning, see our prior Clients & Friends memo “Is the Fintech Charter the Solution? Don’t Bank on It” (May 9, 2019).

2   Other lenders include Capital One and Chase Bank. For further analysis of the lawsuits they face, see our prior Clients & Friends memo “Cardholders Seek to Capital-ize on Madden” (June 18, 2019).

3   Madden v. Midland Funding, LLC, 786 F.3d 246 (2d Cir. 2015), cert. denied, 136 S. Ct. 2505 (2016).

4   No: 1:19-cv-01552-RBJ (D. Colo.).

5   Corrected Memorandum and Order Denying All Claims, p. 22 n. 57 (D. Colo. Br. May 20, 2019).

6  Amicus Brief of the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, p. 23, September 10, 2019. The OCC reiterated this stance again in a letter to Congress, and signaled that a possible regulatory interpretation may be under consideration to address Madden. When Representative Barry Loudermilk of the Committee on Financial Services recently wrote to the OCC to inquire about possible administrative solutions to mitigate Madden’s consequences, Comptroller of the Currency Joseph M. Otting replied that the OCC continued to believe that Madden was wrongly decided and that the OCC would “consider all options, including providing regulatory clarity, to provide more certainty to the banks we regulate.” Letter to Representative Loudermilk from Comptroller of the Currency Joseph M. Otting, October 9, 2019.

© Copyright 2019 Cadwalader, Wickersham & Taft LLP

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Scott Cammarn Financial Law Attorney Cadwalader Law Firm
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Scott Cammarn has 28 years of experience in the banking industry and his legal career has spanned all areas of banking compliance and finance law. His practice focuses on regulatory matters, mergers & acquisitions, legislation, transactions, and training. He represents a number of national and international financial institutions and has practiced before the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, and numerous state banking departments.

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Mark Chorazak, Cadwalader Law Firm, New York, Corporate and Finance Law Attorney
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Mark Chorazak is a partner in the Financial Services Group. Mark represents financial institutions on a wide range of bank regulatory, transactional and compliance matters. He regularly counsels banks, thrifts, investors and other financial services firms on strategic matters and compliance issues arising under the Bank Holding Company Act, the Dodd-Frank Act and other key U.S. banking laws. Among other areas, his practice encompasses Volcker Rule compliance, fintech and financial innovation issues, authority and control matters, anti-money laundering counseling, corporate governance and enforcement actions. In addition, he advises on capital and debt offerings, bank mergers and new charters, as well as on minority investments in bank and non-bank financial institutions by private equity firms. 

Mark joined the firm from Simpson Thacher, where he was the lead regulatory counsel on some of the largest bank mergers since the financial crisis.

Mark received his J.D. from Duke University School of Law, where he was Editor of the Duke Law Journal and won the Bidlake Prize for Excellence in Legal Writing. He received his MSc in 2002 from Oxford University and his B.A., summa cum laude, from Syracuse University in 2000. 

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Jonathan Watkins represents public and private businesses and financial institutions in complex litigation and white-collar investigations. His practice covers securities, derivative, and other shareholder actions, M&A-related litigation, suits alleging breaches of fiduciary duties by corporate directors, disputes involving complex financial benchmarks and instruments, litigation arising out of commercial contracts and transactions, antitrust and other competition-related litigation, and government and internal investigations. Jonathan has represented clients at...

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Marshall Jones White Collar Defense Attorney
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Marshall Jones is an associate in Cadwalader’s Global Litigation and White Collar Defense and Investigations groups. Prior to joining the firm, Marshall clerked for The Honorable Max O. Cogburn, Jr. of the U.S. District Court for the Western District of North Carolina.

Marshall received his J.D. from the University of Virginia School of Law, where he was a production editor for the Virginia Environmental Law Journal. Prior to law school, he graduated with a B.A. from the University of North Carolina at Chapel Hill.

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