In May of 2015, a panel of the Second Circuit Court of Appeals came to the eyebrow-raising conclusion in a case called Madden v. Midland that perfectly valid loans made by a bank could be transformed into illegally usurious loans if sold to a nonbank after the fact.
Most legal observers, including the Obama administration’s solicitor general, concluded that the Second Circuit had probably erred in its reading of the “valid when made” doctrine. Nevertheless, more than 100 consumer and civil rights groups are now urging Congress not to reverse the impact of the Madden ruling.
I have been, far more often than not, on the same side of policy issues as the leading consumer and civil rights groups. But I disagree here: Madden is not just legally wrong; it is also bad public policy, because it moves us further away from creating a more effective and inclusive financial system. Bipartisan, bicameral proposals have already been introduced in Congress to fix Madden. Congress should pass them.
To understand why, it’s useful to take a step back.
Shortly after the Dodd-Frank Act was passed, I was asked by now-Sen. Elizabeth Warren to join a small team at the Treasury Department that was standing up what would become the Consumer Financial Protection Bureau.continue reading »