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National Bank Act

Pepperdine University

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Online Lenders Shouldn't Get Mad Over Madden, Benjamin Lo Jun 2017

Online Lenders Shouldn't Get Mad Over Madden, Benjamin Lo

The Journal of Business, Entrepreneurship & the Law

The Second Circuit’s surprising decision in Madden v. Midland Funding caused consternation within the financial services industry. There, the Madden Court held that the National Bank Act’s pre-emption of state usury law did not apply to consumer debt sold by banks to third parties. Under the Second Circuit’s ruling, third-party buyers could not be certain of loan values, potentially making consumer finance markets less liquid. This decision immediately sparked concerns from the alternative finance industry, which worried that the secondary market for consumer debt would dry up and reduce consumer credit availability. It also alarmed financial technology startups such as …