We have been covering the Madden issue for several years here on Lend Academy (the full list of coverage is here). Today, marked an important day on this issue as the United States Congress passed the Protecting Consumers’ Access to Credit Act of 2017 (HR 3299), otherwise known as the “Madden Fix” bill.
This is a bipartisan bill that was introduced by Congressman Patrick McHenry (R-NC) and co-sponsored by Congressman Gregory Meeks (D-NY). It passed the house this evening by a margin of 245 – 171 meaning it picked up some support from Democrats (16 votes to be precise).
This bill would restore the “Valid when Made” doctrine meaning that if a loan was valid when it was made it does not become invalid when assigned to another party regardless of state usury laws. The Second Circuit Court of Appeals ruled on a case that meant loans made in Second Circuit states (NY, CT, VT) are exempt from this Valid when Made doctrine and theoretically, loans that are to be transferred from originating banks to non-banks would need to adhere to Second Circuit state interest rate caps. This has led to a significant drop in lending activity in those three states as investors and online lending platforms shy away from making and invest in loans there. This is why a fix is needed.
To get more perspective on what the vote today means we reached out to Nat Hoopes, the Executive Director of the Marketplace Lending Association who had this to say about the bill’s passage:
Over the past decade, borrowers across America have used marketplace loans to start new businesses and save billions of dollars through lower interest rates and more transparent products. Today’s action by the House will help ensure that small businesses and consumers can continue to access these affordable credit products online. This legislation simply restores the law of the land as it stood as recently as 2015, providing greater certainty for responsible, well-regulated and supervised partnerships between traditional banks and their fintech partners.
Gilles Gade, the CEO of Cross River Bank, also gave his perspective:
As a partner to many marketplace lending platforms, Cross River combines the trust, security and established expertise of a community bank with cutting edge technology to facilitate innovation, making responsible credit more accessible and affordable. Today’s bipartisan passage in the House is a positive step towards restoring confidence in the secondary markets and promoting lower cost, more efficient access to credit, particularly in communities who have had more limited access to traditional banking services. We look forward to working with Senators Warner (D-Virginia) and Toomey (R-Pennsylvania) to ensure this access continues while appropriate borrower protection is maintained.
Of course, this bill is still a long way from becoming law and it would need 60 votes in the Senate and then the President’s signature before that happens. Many people view that as unlikely but there are other ways it could become law by attaching it to another bill for example. But that is a story for another day. Today, is a positive first step in the legislative process for the Madden fix.