FDIC Files Motion for Summary Judgment in Lawsuit Challenging Its “Madden-fix” Rule

United States: FDIC files motion for summary judgment in lawsuit challenging its ‘Madden-fix’ rule

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The FDIC has filed a motion for summary judgment in the lawsuit brought by the attorneys general of six states and the District of Columbia to overturn the FDIC’s decision”crazy-fix.” The filing also includes the FDIC’s objection to the motion for summary judgment filed by the AGs.

The lawsuit is pending before the same California federal district court judge (Judge Jeffrey S. White) who is hearing the lawsuit brought by three state attorneys general to strike out similar OCC lawsuits. crazy-correction rule. Cross motions for summary judgment have been filed in this case. Oral arguments on the motions were scheduled for May 7, 2021, but on May 6, the Registrar issued a notice canceling the hearing without setting a new date.

In its motion for summary judgment, the FDIC argues that its crazy-the correction rule must be respected in the framework of the two-step procedure Chevron as a reasonable interpretation of Section 27 of the Federal Deposit Insurance Act (12 USC 1831d) because:

  • The rule passes Chevron first step because Congress has failed to answer the specific questions at issue. Nothing in section 27 specifies when the validity of a loan’s interest rate must be determined for the purposes of assessing compliance with section 27, and nothing in section 27 addresses what happens to the validity of the interest rate of a loan upon transfer.
  • The rule passes Chevron second step because it is a reasonable interpretation of Section 27. The FDIC reasonably concluded that Congress could not have intended to give banks the right to make loans that would be “hindered by significant write-downs in the resale value and liquidity of loans, such as would occur if a bank could not transfer enforceable rights in the loans it made.” The reasonableness of the interpretation of the FDIC is further demonstrated by court decisions adopting a similar interpretation of other statutes.

In their motion for summary judgment, the AGs argue that the FDIC rule violates administrative procedure law because it is beyond the authority of the FDIC and impermissibly overrides state law and that it is arbitrary and capricious. In opposing the AGs motion, the FDIC’s arguments include:

  • Responding to the AGs’ argument that the rule exceeds the FDIC’s authority because the plain language of Section 27 only applies to interest that a bank can charge, the FDIC argues that the AG’s argument fails to properly consider legislative language in context. According to the FDIC, Section 27 regulates the terms of a loan agreement and because loan agreements are transferable “logic and common sense suggest that Congress could not have intended to depart well-established principles that an assignor may transfer enforceable rights in its contracts – or at least not without an explicit statement showing that it was doing so, which it has not provided here.”
  • Responding to the AGs’ argument that the rule overrides the FDIC’s authority because the FDIC can only regulate FDIC-insured banks and the rule regulates non-banks, the FDIC argues that the rule regulates the conduct and rights of banks when they sell, assign or transfer loans. (emphasis included). Any indirect effect the rule has on non-banks does not place the rule outside the jurisdiction of the FDIC. The assignee’s ability to charge the contractual interest rate arises from the fact that a bank’s legal power to make loans at particular rates necessarily includes the power to assign the loans at those rates.
  • Responding to the AGs’ argument that the rule impermissibly overrides state law by extending preemption of state interest rate limits to purchasers of loans from FDIC-insured banks, the FDIC argues that GAs misrepresent the rule. According to the FDIC, the rule “simply interprets the substantive meaning of [Section 27], it does not itself prejudge state law.” Quoting Smileys, the FDIC argues that an agency’s interpretation of the substantive scope and meaning of a preemptive statute does not itself prejudge state law (rather, the law does) and does not therefore not trigger the presumption against preemption. »
  • Responding to the AGs’ argument that the rule is arbitrary and capricious because the FDIC failed to sufficiently consider evidence that the rule will likely facilitate bank leasing programs and failed to meaningfully address the applicability of the true lender doctrine to sales of loans potentially covered by the rule, the FDIC argues that the rule would not protect such regimes but, “rather, the rule would only apply if a bank actually consented to the ready”. The FDIC also says it fully considered whether the rule should address the application of the true lender doctrine and reasonably determined that it did not because “although the issue of true lender and the question addressed by the
    [Madden-fix rule] “ultimately affect the rate of interest that can be charged to the borrower, the FDIC believes they are not so closely related that they should be addressed concurrently through rulemaking.” support because the FDIC has not demonstrated that crazy caused significant effects on the availability of credit or the securitization markets, the FDIC asserts that the APA does not require it to provide evidence that widespread adverse effects would (or have) occurred in the absence of regulation. He argues that “before issuing a rule, an agency does not need to find that there are problems to be solved. in industry. The agency may instead decide that the problem is the discrepancy or ambiguity in status.” (emphasis included). The FDIC asserts that “there is a rational connection between the problem identified by the FDIC (the statutory deficiencies or ambiguity as to when validity is determined and what happened during the transfer) and the FDIC’s solution (an interpretation clarifying that validity is determined at the inception of the loan and is not affected by the transfer of the loan.”

Under the Amended Programming Order issued by the court:

  • The FDIC must file its response by July 15, 2021.
  • Oral arguments on the summary judgment motions are scheduled for August 6, 2021.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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