Fannie Mae-No Politics (FNMA)

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Madden also has the potential to be cited as precedent in, and used as the basis for, litigation in other circuits. Of course, defendants are free to question the Second Circuit’s reasoning in Madden, including the lack of consideration of the valid-when-made doctrine and the version of the preemption analysis on which the court relied. Concerned parties would be well advised to consider the treatment of the valid-when-made doctrine in their own circuit and whether there is sufficient precedent to deny a Madden-based challenge.

However, from the perspective of an originator or debt purchaser, this does raise the question of whether there is now a split between the Second Circuit, on the one hand, and the Eighth (and Fifth) Circuit, on the other, and, accordingly, whether such parties should evaluate loans made to borrowers located in such jurisdictions in a different manner. In the U.S. Solicitor General’s amicus brief opposing the writ of certiorari, the Solicitor General argues that there is no such split given the particular facts of each of the most notable cases. The Solicitor General notes that Madden is a case addressing whether federal preemption applies to interest rates charged by an assignee in a situation where the originating national bank entirely terminates its relationship with the borrower. By contrast, the Solicitor General notes that: Phipps v. FDIC, 417 F.3d 1006 (8th Cir. 2005) only addressed whether mortgage-loan fees charged by a national bank (as opposed to an assignee) was interest not subject to preemption; Krispin v. The May Department Stores 218 F.3d 919 (8th Cir. 2000) addressed a situation where a national bank retained a credit card customer’s accounts, along with the processing and servicing responsibilities, and only assigned the related receivables to a non-bank; and FDIC v. Lattimore Land Corp., 656 F.2d 139 (5th Cir. 1981) involved a loan originated by a state regulated entity (as opposed to a national bank). For that and other reasons, the Solicitor General argued that there was no circuit split requiring resolution by the Supreme Court.

However, from a practical perspective, it cannot be denied that Madden creates a precedent (regarding the treatment of interest charged by non-bank assignees) in the Second Circuit that is simply lacking in the other circuits. The uncertainty created by such precedent will not be resolved until another district court in the Second Circuit (or perhaps the court of appeals itself) addresses the applicability of the valid-when-made doctrine to a loan held by a non-bank assignee.

http://www.mondaq.com/unitedstates/x/504804/Financial+Services/Finance+Alert+The+Uncertain+Legacy+of+Madden