Update On Oregon Opt Out Of DIDMCA

Following up on our article last month discussing Oregon’s opt-out from the Depository Institutions Deregulation and Monetary Control Act (DIDMCA), the banking industry, fifteen state attorneys general, as well as the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), have filed amicus briefs supporting a preliminary injunction to prevent Oregon from exercising the opt-out. As a reminder, DIDMCA contains an opt-out provision that allows states to prevent the exportation of interest rates by state-chartered banks into the state. National banks, governed by the OCC, may always export their interest rates.

Although each amicus brief approaches the topic from a different perspective, the message to the United States District Court in Oregon is clear: allowing Oregon to opt-out effectively interferes with the dual-banking system in the United States, which, as the FDIC says is “a system whose continued success depends on preserving a level playing field between state-chartered and national banks.” This is because Oregon’s interpretation of DIDMCA would effectively allow Oregon to, as the banking industry brief says, “project its interest-rate caps onto loans made by out-of-state state banks operating under the laws of their home states . . . whenever the borrower has a sufficient Oregon nexus, including by virtue of Oregon residency or by making payments through an Oregon financial institution.” The OCC’s brief describes the resulting marketplace, if Oregon’s interpretation is deemed valid, as being subject to “destabilizing confusion as to the permitted rates of interest for state banks under DIDMCA.”

Of particular interest is the amicus brief filed by the 15 state attorneys general (Alabama, Arkansas, Florida, Georgia, Iowa, Louisiana, Mississippi, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, West Virginia, Texas and Utah), which advocates against Oregon’s DIDMCA opt-out on the basis that “any laws that would undermine state-chartered financial institutions and incentivize them to convert to federally-chartered institutions” would be bad for state economies.  Also, it is indeed curious that Iowa joined into the brief since Iowa opted-out from DIDMCA when it was initially passed, and remains opted-out.  The brief was led by the state of Utah and did not focus upon Iowa’s experiences as an opted-out state, but it is still telling that Iowa joined in the brief itself.