FDIC Files Response to Support Motion for Summary Judgment in Lawsuit Challenging “Madden-Fix” Rule | Ballard Spahr srl
The FDIC filed its reply in support of his motion for summary judgment in the lawsuit by a group of state attorneys general to quash the “FDICMadden” fixed “. The answer responds to GA opposition to the FDIC summary judgment motion. State AGs also filed a motion for summary judgment. The FDIC filing concludes the briefing on cross-motion for summary judgment. Pleadings on the motions are scheduled for August 6, 2021.
The trial is pending before the same California Federal District Court judge (Judge Jeffrey S. White) who is hearing the lawsuit brought by three state AGs to overturn the similar decision of the OCC Madden-fix the rule. Cross motions for summary judgment have been filed in this case. Oral argument on the motions was scheduled for May 7, 2021, but on May 6, the clerk issued a notice canceling the hearing without setting a new date.
The FDIC makes the following main arguments in its response:
- In response to the AGs argument that the FDIC rule is not entitled to deference because Section 27 of the Federal Deposit Insurance Act (12 USC 1831d) is unambiguous, the FDIC argues:
- The rule satisfies Chevron first step because it fills two statutory gaps: nothing in Article 27 specifies when the validity of the interest rate of a loan must be determined for the purposes of assessing compliance with Article 27 (c (i.e. at the time a loan is made or when a bank “takes” or “receives” interest) and nothing in Article 27 deals with what happens when a loan is transferred by a bank at a rate authorized by section 27.
- The rule passes Chevron second step because it is a reasonable interpretation of section 27. The FDIC reasonably concluded that Congress could not have intended to give banks the right to make “hindered loans” by significant write-downs in the resale value and liquidity of loans, as would occur if a bank could not transfer enforceable rights to the loans they have made. The rule does not extend preemption to non-banks because it regulates the conduct and rights of banks when selling, assigning or transferring loans.
- In response to the AG’s argument that the rule violates the Administrative Procedure Act (APA), the FDIC argues:
- The FDIC complied with the procedural requirements of the APA in promulgating the rule and because the rule is reasonable, “it is by definition neither arbitrary nor capricious.”
- Regarding the MA’s assertion that the FDIC “ignores[d] evidence contradicting the agency’s premise that failure to transfer preemption from state rate caps restricts bank liquidity “, there is no such contradiction because the premise described by the GA” is a straw man [their] own creation. The FDIC does not claim that cap rates limit liquidity, but rather argues that “the inability of banks to transfer enforceable rights on the loans they have made limits the value and liquidity of loans.”
- The FDIC did not speculate on by Madden negative effects to issue the rule, but instead, “based the rule on accepted tools of statutory interpretation associated with the agency’s own banking expertise.” The rule was not meant to deal with by Madden effects, but rather aimed at filling the two statutory lacunae of Article 27 “which exist independently of Madden. “