In the year On November 30, 2023 at 12:30 p.m., ET, Ballard Spar will host a webinar titled “What Recent Important Changes in Federal Preemption for National and State Banks Mean for Bank and Non-Bank Consumer Financial Services Providers.” Dispersion.
In a lengthy (65-page) order, the California Superior Court in Los Angeles handed down a landmark ruling upholding the legality of bank-model online lending by denying a request for a preliminary injunction filed by the California Department of Financial Protection and Innovation. DFPI (DFPI CFL), which sought to compel it to stop making loans to California borrowers at rates above the interest rate allowed by California finance law (generally 36 percent plus the federal funds rate). As noted in our previous blog about DFPI’s activity, FinWays Bank, a state-chartered FDIC-insured bank in Utah, is authorized under Section 27 of the Federal Deposit Insurance Act to pay interest on loans made to California residents. The amount allowed under Utah law notwithstanding the minimum interest rate under California law.
In denying DFPI’s motion, the court laid the groundwork for its analysis by discussing California’s usury law in depth. and legal status when a public agency moves for an order.
The Court proceeded with an analysis leading to the conclusion that DFPI had not demonstrated a reasonable likelihood of prevailing on the condemnation claim in the litigation. The Court explains that the concepts of operation under California usury law and the Constitution and the “barrier presumption” serve as a basis for denying DFPI’s claim:
“In summary, on the present record and for purposes of this inquiry, pursuant to the FDIC and federal cases cited above, up to “FinWise-originated” OppLoans had allowable interest rates at the time the loans were issued. A bank that sold, assigned, or otherwise transferred the loans to OppFi would not be usurious.” In this move, this principle is consistent with California usury law and the Constitution.
Indeed, as stated above, “‘obstacle presumptions arise” in circumstances. [a] special case, [the challenged state law] It stands in the way of the accomplishment and execution of the full purposes and purposes of Congress.'” … “(“A federal law may preempt a state law to the extent it conflicts with a federal law. Such conflict . . . [can also occur] . . . Because the state law is an “obstacle to the accomplishment and execution of the full purposes and purposes of Congress” (citations omitted)]).
Here, in this petition and on the present record, the Court interprets the CFL to mean that FinWays is not a “genuine lender” for exempt purposes because the Bank decided to assign, sell or otherwise transfer OppLoans to OppFi (the days or months in which the loans were acquired, or in whole or in part). How the House interprets Section 27 and the FDIC’s interest provision in allowing banks like FinWise to do so may be a hindrance to the full intent and purpose of Congress.
Accordingly, on the present record, the Court determined that the Commissioner did not have a reasonable likelihood of prevailing at trial.
We will study the High Court’s order in the coming days and present our more detailed discussion and comments on this order and what it conveys. See our previous blog for summaries and links to previous submissions and arguments of the parties.