Bank Groups Ask Court to Block Oregon Law Capping Loan Rates

Three banking and lending groups have asked a federal court to stop Oregon from enforcing a new law. The National Association of Industrial Bankers, the Online Lenders Alliance and the American Financial Services Association filed the request on July 9, according to an analysis by the law firm Ballard Spahr. The groups are seeking a preliminary injunction that would pause the law while a legal case moves forward.

The law in question is Oregon House Bill 4116. It would extend Oregon’s 36% cap on interest rates to certain loans made to Oregon residents by out-of-state banks, following the rules of those other states. The groups behind the lawsuit say Oregon is reaching across its borders to control business that happens somewhere else.

Oregon has one right the banking groups do not dispute. A 1980 federal law lets states opt out of certain rules and set their own rate limits for banks chartered inside their own borders. The groups accept that Oregon can do this for Oregon banks. What they object to is the second part of the law, which stretches the rate cap to out-of-state banks lending to Oregon customers.

The law hinges on whether a loan is “made” where the bank sits or where the borrower lives. The groups argue a loan is made where the bank operates and does its lending work, not where the customer happens to live. They lean heavily on a Colorado court decision that reached the same conclusion.

Ballard Spahr’s analysis lays out why the plaintiffs believe they will win. As the firm summarizes their position, federal law “expressly preempts conflicting state interest-rate limitations in the borrowers’ state.” In plain language, the banking groups say a longstanding federal rule already blocks Oregon from doing what it is trying to do.

The groups also raise a second objection tied to the U.S. Constitution. Part of the Oregon law kicks in when a resident makes loan payments from an Oregon bank account, even if both the bank and the borrower sat outside Oregon when the loan was created. The plaintiffs claim this an illegal attempt to regulate activity happening entirely beyond Oregon’s borders.

Money is another big piece of their argument. The groups say their member banks have already spent heavily to comply with the law, which took effect on June 5, 2026. They contend that continued enforcement could push some lenders to cut back on loans, drop products or end relationships with customers. Because states are generally shielded from paying damages, the groups say they cannot recover those losses later, which is why they want the law paused now.

Oregon is one of only four places currently using this kind of opt-out, alongside Colorado, Iowa, and Puerto Rico. A separate but nearly identical case is already before a federal appeals court, and both cases turn on the same question about where a loan is really made. Whatever the Oregon judge decides can be appealed right away.

The outcome will ripple well beyond one state. As Ballard Spahr notes, these cases will shape interstate lending, partnerships between banks and fintech companies, and the broader question of how far a state can reach when the money crosses a border.