Secondary Loan Markets Post-Madden: Overcoming Restrictions in Future Loan Transactions and Secondary Market Sales

The U.S. Supreme Court denied cert in the Second Circuit’s Madden v. Midland Funding decision, letting stand a ruling that an assignee of consumer loans originated by a national bank cannot invoke federal preemption to defend against a state law usury claim. The decision bypasses the long-standing “valid when made” principle that lenders and secondary loan market participants have relied on to charge interest rates as high as those permitted by the originating bank’s jurisdiction.

As a result of Madden, national banks and marketplace lenders need to consider how to export interest rates when they sell loans originated in the Second Circuit. The fallout from the decision is expected to reach beyond the Circuit to national banks across the country and leaves a great deal of uncertainty for all players involved in secondary loan market transactions. The decision has already prompted class action lawsuits by both marketplace lending shareholders and borrowers.

Counsel representing banks as well as secondary market participants must become well versed in tactics to weather the impact of this decision on pre-Madden debt and provide financial clients with tools to mitigate negative effects on future loan transactions and secondary market sales.

Listen as our authoritative panel provides strategies for originating loans and structuring loan sales to circumvent the effect of Madden as well as valid defenses that can be asserted by marketplace lenders and secondary market loan purchasers to defeat claims by consumers and investors attempting to rely upon Madden.

1. Madden v. Midland usury restrictions
2. Valid when made doctrine
3. True lender and rent a charter challenges
4. Other litigation prompted by Madden
5. Future of the secondary market post-Madden and effects on secondary and securitization participants
6. Strategies to avoid the effects of Madden

The panel will review these and other key issues:

• How can loan originations, sales and securitizations be structured to mitigate Madden’s effects?
• What provisions should be included in originating loan documents to reduce Madden concerns?
• How can secondary market participants avoid “true lender” challenges?
• What effect does Madden have on loans originated outside the Second Circuit?
• What strategies can be used by assignees attempting to enforce pre-Madden debt?
• Should secondary market participants seek to renegotiate terms with loan originators to maintain interest rates in loans sold?