Facts

The Federal Deposit Insurance Corporation has primary regulatory and supervisory responsibility over federally-insured state-chartered banks (FDIC state banks),. To curb predatory lending, several states, including California, enacted usury laws to cap interest rates lenders can charge on consumer loans. National banks (chartered and regulated under federal rather than state laws), however, are not subject to those state interest-rate caps and, can instead charge the interest rate of the state where they are incorporated instead of the rates of the states where their borrowers live. FDIC state banks were later provided the same privilege as national banks through the Federal Deposit Insurance Act's (FDIA) Section 27. After the FDIC issued a rule--Federal Interest Rate Authority Rule--several states filed suit for declaratory and injunctive relief on the portion of the Rule establishing that the allowable interest rate to be charged would be determined as of "the date the loan was made," and "not affected by" any sale, assignment or transfer.

PLAINTIFFS' CONTENTIONS: Plaintiffs contended that defendant violated the Administrative Procedure Act in enacting the Federal Interest Rate Authority Rule. The Rule would dramatically extend preemption of state interest-rate caps beyond to not only FDIC Banks but also to any entity that buys their loans. In essence, the ability of states to protect their consumers from usurious interest rates charged by predatory lenders would be diminished. Plaintiffs argued that this provision of the Rule was beyond the scope of the FDIC's power to issue, was contrary to the statute, and would gravely facilitate predatory lending; for example, in an attempt to evade state law, a third party could partner with an FDIC Bank to originate a loan, known as "rent-a-bank" partnerships. Moreover the FDIC failed to follow Congressional procedures so that it evaded having to explain any rejection of contrary evidence or regulatory evasion.

DEFENDANTS' CONTENTIONS: Defendants contended that the Rule was enacted to address uncertainty of which interest rate was allowed after the Madden v. Midland Funding case. Because the Madden decision created uncertainty for both the banks selling loans and the non-banks buying loans, defendants enacted a "valid when made" rule to provide certainty that the original interest rate would remain legal regardless of state usury laws after a national bank sells consumer debts to a non-bank debt buyer.

Result

The court granted defendant's summary judgment, deciding in part, that the Rule's Interest Provision was not arbitrary and capricious as analyzed under *Motor Vehicle Mfr. Ass'n of U.S. Inc. v. State Farm Mut. Auto. Ins. Co*.