By Lee P. Dunham, J.D.
Even if a non-bank defendant has a close relationship with a state or national bank, the Federal Deposit Insurance Act does not give rise to complete preemption permitting federal jurisdiction over claims brought against a non-bank defendant, found the district court in Colorado (Meade v. Avant of Colorado, LLC et al., Martinez, W.).
Background. Although not a bank, Avant of Colorado, LLC obtained a Colorado supervised lender’s license for the purpose of "making (i.e., originating) small installment loans of $1,000 or less" and "making (i.e. originating) unsecured loans or loans secured by personal property and/or autos."
Its parent company Avant, Inc. also entered into a lending program agreement with a Utah-chartered bank, whereby the Utah bank would make loans to consumers who applied through Avant, Inc.’s website, and then, within two business days, resell the loans to Avant, Inc. or its affiliates. Under the agreement, Avant, Inc. bore nearly all of the risks, costs, responsibility, and liability for the lending program, and collected 99 percent of the profits on the loans, while the Utah bank received only approximately 1 percent.
Preemption argument. The Administrator of the Colorado Uniform Consumer Credit Code brought an action against the two Avant companies, alleging that they had violated Colorado’s statutory limits on excessive finance and delinquency charges, and that the terms of their loans included an unlawful choice of law provision. The defendants removed the action to federal court, arguing that Section 27 of the FDIA preempted the state law claims at issue, because the loans were originated by a Utah bank. Section 27 allows a state bank to charge interest rates permitted in its home state on loans made in another state, even if that interest rate would be unlawful in the state where the loan is made.
The Administrator filed a motion to remand for lack of subject matter jurisdiction, arguing that the Utah bank was not the "true originator" of the loans because it did not bear the predominant economic interest in the loans, and that therefore Section 27 of the FDIA, which governs claims against "state banks," not non-bank entities, did not apply.
The court granted the Administrator’s motion, holding that because the Administrator had directed her claims against non-bank entities and did not assert any claims against the Utah bank, and because the relief sought was related to the charges that the defendants, not the bank, had imposed, the claims were not preempted by the FDIA.
The case is No. 17-cv-0620-WJM-STV.
Attorneys: Nikolai N. Frant, Colorado Attorney General's Office, for Julie Ann Meade. Jason R. Dunn (Brownstein Hyatt Farber Schreck, LLP) for Avant of Colorado LLC d/b/a Avant and Avant Inc.
Companies: Avant of Colorado LLC d/b/a Avant; Avant Inc.
MainStory: TopStory ColoradoNews DepositInsurance Preemption UtahNews
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