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Financial Services Law Insights and Observations

Special Alert: Second Circuit Will Not Rehear Madden Decision That Threatens To Upset Secondary Credit Markets

National Bank Act Usury Second Circuit Madden

Two months ago we issued a Special Alert regarding the decision of the Court of Appeals for the Second Circuit in Madden v. Midland Funding, LLC, which held that a nonbank entity taking assignment of debts originated by a national bank is not entitled to protection under the National Bank Act (“NBA”) from state-law usury claims. We explained that the Second Circuit’s reasoning in Madden ignored long-standing precedent upholding an assignee’s right to charge and collect interest in accordance with an assigned credit contract that was valid when made. And, because the entire secondary market for credit relies on this Valid-When-Made Doctrine to enforce credit agreements pursuant to their terms, the decision potentially carries far-reaching ramifications for securitization vehicles, hedge funds, other purchasers of whole loans, including those who purchase loans originated by banks pursuant to private-label arrangements and other bank relationships, such as those common to marketplace lending industries and various types of on-line consumer credit.

After the decision, Midland Funding, the assignee of the loan at issue, petitioned the Second Circuit to rehear the case either by the panel or en banc – a petition that was broadly supported by banking and securities industry trade associations in amicus briefs.  On August 12, the court denied that petition.


Click Here to View the Full Special Alert




Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

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