In 1980, Congress enacted the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). Sections 521-523 of DIDMCA empower state banks, insured state and federal savings associations and state credit unions to charge the interest allowed by the state where they are located, regardless of where the borrower is located and regardless of conflicting state law (i.e., “export” their home state’s interest-rate authority). However, section 525 of DIDMCA gives states the authority to opt out of sections 521-523. Colorado was one of the original states to opt out, but later repealed its opt-out. Currently, only Puerto Rico and Iowa have section 521-523 opt-outs in effect.
Colorado HB 1229, introduced earlier this month, has already passed the House and was the subject of a hearing before a Senate committee today. If passed, HB 1229 would limit certain charges on consumer loans and simultaneously opt Colorado out of sections 521-523 of DIDMCA once again. It would become effective upon enactment.
While the Colorado legislature may intend to limit the charges that can be imposed by out-of-state depository institutions making loans to Colorado residents, this is far from clear. Indeed, in Stoorman v. Greenwood Trust, a Colorado appellate court previously held that Colorado’s initial section 525 opt-out did not apply to credit card transactions between out-of-state state banks and Colorado residents, since the transactions were not deemed to be “made in” Colorado, as required for the opt-out to apply. 888 P.2d 289, 293-94 (Colo. App. 1994) aff’d 908 P.2d 133 (Colo. 1995) (en banc). Moreover, other federal precedent relating to interest rate exportation supports the conclusion that, so long as the bank appropriately establishes the loan program, when analyzing whether an opt-out should apply, loans are made in the out-of-state depository institution’s location, not the borrower’s state.