786 F.3d 246
2d Cir.2015Background
- Madden, a New York resident, opened a Bank of America (BoA) credit card; the account later transferred to FIA Card Services, N.A. (a national bank).
- FIA charged off and sold Madden’s roughly $5,000 account to Midland Funding (a non-bank debt purchaser); Midland Credit Management services the debt. Neither Midland entity is a national bank.
- Midland sent a collection letter indicating a 27% annual interest rate; Madden sued on behalf of a putative New York class alleging FDCPA violations and that the interest was usurious under New York law.
- The District Court found factual disputes (receipt of Cardholder Agreement/Change in Terms and assignment) but parties later stipulated those facts and the court entered judgment for defendants, reasoning NBA preemption and that a Delaware choice-of-law term authorized the rate; it also denied class certification.
- On appeal, the Second Circuit reversed the District Court’s NBA-preemption ruling, vacated judgment and the denial of class certification, and remanded for the District Court to decide the Delaware vs. New York choice-of-law issue and related matters.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the National Bank Act (NBA) preempts state usury claims against Midland (assignees) | Madden: NBA does not preempt her claims against non-bank assignees who act on their own behalf | Defs: As assignees of a national bank, NBA preempts state usury claims and permits rates set by the bank’s home state (Delaware) | Reversed District Court: NBA does not preempt here; preemption extends only where applying state law would significantly interfere with a national bank’s powers or where the non-bank effectively acts for the bank |
| Choice of law (Delaware vs New York) | Madden: New York usury law applies and bars >25% interest | Defs: Change-in-Terms contains a Delaware choice-of-law clause that permits the charged rate | Not decided on appeal; remanded to District Court to decide in the first instance |
| FDCPA claim based on false representation of lawful entitlement to interest | Madden: Collection letter falsely represented legal entitlement to the higher interest, violating FDCPA | Defs: If NBA preempts or Delaware law applies, no false representation; agreement permits rate | Vacated District Court judgment; FDCPA claim must be reconsidered after choice-of-law and preemption determinations |
| Class certification | Madden: Classwide adjudication appropriate for New York residents sent similar letters | Defs: Individual issues (agreement receipt, assignment, NBA preemption) preclude class treatment | Vacated denial of class certification because it relied on erroneous preemption analysis; District Court must reassess class issues on remand |
Key Cases Cited
- Beneficial Nat’l Bank v. Anderson, 539 U.S. 1 (Sup. Ct. 2003) (NBA preempts state usury claims against national banks)
- Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25 (Sup. Ct. 1996) (preemption requires significant interference with national bank powers)
- Watters v. Wachovia Bank, N.A., 550 U.S. 1 (Sup. Ct. 2007) (operating subsidiaries may receive NBA preemption when acting as bank equivalents)
- Pac. Capital Bank, N.A. v. Connecticut, 542 F.3d 341 (2d Cir. 2008) (extending preemption to entities acting on behalf of national banks where appropriate)
- SPGGC, LLC v. Blumenthal, 505 F.3d 183 (2d Cir. 2007) (distinguishing state regulation of third parties from interference with bank powers)
- Krispin v. May Department Stores, 218 F.3d 919 (8th Cir. 2000) (preemption applied where assignee retained status/function of originating bank)
- Phipps v. FDIC, 417 F.3d 1006 (8th Cir. 2005) (examining when fees/interest charged implicate NBA preemption)
- City of New York v. FCC, 486 U.S. 57 (Sup. Ct. 1988) (preemption principles under the Supremacy Clause)