Tenth Circuit Ruling Allows Colorado to Enforce Interest Rate Caps

The case, National Association of Industrial Bankers v. Weiser, was brought by three banking trade associations against the Colorado but attracted interest from two dozen other states and the District of Columbia as amici, along with multiple state and federal banking associations. It concerned the interpretation of language in the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) passed by Congress in 1980 that authorized state-charted banks to charge the same interest rate on loans as national banks and preempted state laws to the contrary.

The law included a provision that allowed states to opt-out of the national standard, however, but only with respect to “loans made in such State.” Colorado exercised its opt-out right in 2023, joining Iowa and Puerto Rice as the only jurisdictions to opt-out, and imposed an interest-rate cap only loans made to Coloradans by out-of-state banks. The plaintiff banks claimed, and the district court agreed, that the phrase “loans made in such state” referred to the state in which the bank is located, as only banks make loans, and therefore Colorado’s rate cap law was preempted by the National Bank Act.

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In a 97-page opinion, however, the Tenth Circuit disagreed, ruling that the phrase “in such state” referred to the state in which the borrower is based, and therefore the Colorado statute was not preempted.

In addition to banks themselves, the ruling holds implications for buy-now-pay-later (BNPL) payment providers that rely on state-chartered banks to sponsor interest-bearing payment plans. Those plans are now subject to Colorado’s rate cap on financing plans offered to consumer in that state, even if the sponsoring bank is chartered in another state. Zero-interest BNPL plans that charge fees to merchants rather than consumers would not be directly affected.

BNPL plans exploded in popularity during the Covid pandemic when online shopping surged among consumers. Since then, they have continued to gain traction, particularly with young consumers reluctant to use traditional credit cards for purchases and those with poor or no credit, often tied to state-chartered banks to sponsor loans.

As a practical matter, BNPL providers for now are likely to simply switch to Colorado or nationally chartered banks to sponsor interest bearing plans for Coloradans. But other states have rate caps that were presumed to be preempted with respect to interstate banking, but now may not be if the Tenth Circuit ruling stands.

A 2023 study by the Federal Reserve found that fintech-bank partnerships, such as BNPL loans, frequently target marginal consumers in low-rate cap states that mainstream banks generally avoid by locating the bank in states with higher or no caps allowing them to charge higher rates. Often those plans are the only source of credit available to those consumers, but they could now be curtailed if the interstate model no longer works.

One long-term result of the Tenth Circuit ruling could be a state-by-state patchwork of rate caps, forcing BNPL providers to fine-tune their offerings according to the states in which the borrower is located rather than the bank.