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Supreme Court Denies Certiorari Petition in Madden Case

Susan F. DiCicco and David B. Salmons, Morgan Lewis, June 2016

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Although it is reasonably unlikely that other circuit courts will follow the Second Circuit decision, it is uncertain whether application of the Madden case in the Second Circuit will be confined to its facts. On June 27, the US Supreme Court denied the petition for certiorari in Madden v. Midland Funding, a case closely watched by the financial industry. In Madden, the US Court of Appeals for the Second Circuit held that a loan originated by a national bank ceased to have preemptive effect under the National Bank Act once it was assigned to a nonbank debt collector because the assignee was not a nationally chartered bank and it was collecting on behalf of itself and not a national bank.[1] Without preemption, the loan—only when held by a nonbank assignee—would be subject to applicable state law, which, depending on which state’s law applies, could create potential liability under state statutes, such as usury and consumer protection statutes. Given the active secondary market for consumer loans, the Second Circuit decision has created uncertainty and affected the willingness of certain market participants to acquire or finance loans.

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