Appeals court vacates Colorado ‘rent-a-bank’ ban on rates

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• Key insight: The U.S. Court of Appeals for the 10th Circuit vacated a landmark 2 to 1 decision last year that had favored Colorado’s interest rate caps.
• What’s at stake: Colorado cannot enforce its 2023 law intended to halt “rent-a-bank” schemes and force out-of-state banks to comply with its usury limits.
• Forward look: The core dispute is whether a state can use federal law to cap the interest rates that state-chartered banks can “export” to its residents, which would reshape bank-fintech partnerships.

A federal appeals court has agreed to rehear a challenge to a Colorado law intended to combat “rent-a-bank” arrangements that would impose Colorado’s interest rate caps on certain out-of-state banks. 

Last Thursday, the U.S. Court of Appeals for the 10th Circuit reversed a lower court’s preliminary injunction and sided with bank trade groups and their fintech partners in agreeing to a rehearing by the full court. 

The case, National Association of Industrial Bankers v. Weiser, centers on the ability of state-chartered banks to export interest rates across state lines. The case is focused on whether a state can use its “opt-out” authority under federal law to cap the interest rates charged by out-of-state banks to its residents. The ruling particularly affects “bank-fintech” partnerships, which often rely on state-chartered banks to provide high-interest consumer loans nationwide.

“There’s a lot at stake as it relates to the future of banking and the ability of banks to work with innovative partners,” said Phil Goldfeder, CEO of the American Fintech Council, one of the trade groups that sued Colorado.

The order last week for an “en banc” rehearing vacated a landmark 2 to 1 ruling in November that favored Colorado, potentially disrupting bank-fintech lending partnerships. The appeals court kept a preliminary injunction in place, reinstating the original protections for state-chartered banks pending a full court review. En banc rehearings are extremely rare. But the far-reaching implications of the case prompted the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, 20 state attorneys general, and 50 state bankers associations to file amicus briefs in favor of the trade groups.

Oral arguments will likely be heard after September with a decision expected in the first half of 2027.

The dispute arose after Colorado passed legislation in 2023 to “opt out” of Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980, known as DIDMCA. In doing so, Colorado signaled its intent to enforce the state’s interest-rate caps on loans from state banks to Colorado borrowers. Section 521 was originally intended to create parity between state banks and national banks by allowing state banks to charge interest at the rate permitted in their home state, regardless of the borrower’s location. Colorado caps interest rates at anywhere from 8% to 45% depending on the type and loan size.

Several trade groups with state-member banks — the National Association of Industrial Bankers, the American Financial Services Association and the American Fintech Council — had sued Colorado Attorney General Philip Weiser to block the law. They argued that Colorado’s opt-out should only apply to banks physically located within Colorado, not to out-of-state banks lending to Colorado residents. The district court agreed with the banks and granted a preliminary injunction. 

The 10th Circuit’s order asks technical questions including whether the phrase “loans made in such State,” is ambiguous or if it encompasses loans in which either the lender or the borrower is located in the “opt-out” state.