DIDMCA Opt-Outs Resurface: Oregon Legislation and the Colorado Case Could Alter the Landscape for Interstate Lending by State Banks

In this episode of the Consumer Finance Monitor Podcast, host Alan Kaplinsky is joined by colleagues Pilar French and Burt Rublin to unpack a rapidly evolving issue at the intersection of bank–FinTech partnerships and interstate lending: the renewed exercise of state opt-out authority under Section 525 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). Colorado enacted an opt-out statute in 2023 that is the subject of ongoing litigation before the entire Tenth Circuit Court of Appeals, and very recently the Oregon Legislature passed an opt-out bill as well. The Podcast discussion highlights how a little-used statutory provision is now at the center of a major legal and policy debate—one that could reshape the landscape for state-chartered banks and the broader consumer finance industry. The Foundation: Interest Rate Exportation Under DIDMCA For decades, state-chartered, FDIC-insured banks have relied on Section 27 of the Federal Deposit Insurance Act—enacted through DIDMCA—to "export" interest rates permitted in their home states to borrowers nationwide. This authority mirrors the power granted to national banks under the National Bank Act and has been a cornerstone of interstate lending. However, DIDMCA also includes a lesser-known provision—Section 525—that allows states to opt out of this federal framework for state banks with respect to "loans made in such state." For years, this provision attracted little attention. That is now changing. Oregon's House Bill 4116: A New Wave of Opt-Out Activity Oregon's recently passed House Bill 4116 represents one of the most significant modern uses of the DIDMCA opt-out provision. If signed into law, it would: 1.     Reimpose Oregon's interest rate caps (generally 36%) on certain loans made to Oregon residents; 2.     Apply broadly to consumer finance loans of $50,000 or less; 3.     Expand the definition of where a loan is "made" to include the borrower's location—such as where the consumer resides or enters into the loan agreement. Surprisingly, the law applies to state-chartered banks but excludes credit unions. The legislation appears driven by concerns over high-interest, short-term lending, though testimony suggested that such loans represent only a small portion of the market. Critics argue that the bill oversimplifies complex lending structures—particularly bank–FinTech partnerships—through politically appealing but potentially misleading narratives. The Core Legal Dispute: Where Is a Loan "Made"? At the heart of both the Oregon legislation and ongoing litigation in the Tenth Circuit concerning the Colorado opt-out statute is a fundamental interpretive question: where is a loan "made" for purposes of Section 525 of DIDMCA? 1.     Industry Position: A loan is "made" where the bank is located, because the bank is the entity that extends credit. Therefore, an opt-out by a state only enables it to impose its own usury laws on loans made by its own state banks  and eliminates their ability to charge interest pursuant to Section 27 of the Federal Deposit Insurance Act. 2.     Opt-out State/Consumer Advocate Position: A loan is "made" both where the bank is located and where the borrower resides. This means that an opt-out state can apply its own usury laws to interstate loans made to its citizens by state banks located in other states. This distinction is critical. If the broader interpretation prevails, states that opt out of DIDMCA could effectively regulate interest rates charged by out-of-state banks to their residents—significantly curtailing interstate lending. The Colorado Litigation: A Pivotal Case Colorado's opt-out statute has become the testing ground for this issue, as it raises an issue that all sides agree is one of first impression. 1.     A federal district court sided with industry plaintiffs, granting a preliminary injunction against enforcement of the opt-out statute and holding that only the bank's location determines where a loan is made. 2.     A divided panel of the Tenth Circuit reversed that decision, adopting Colorado's argument that a loan is made in both the borrower's location and where the bank is located. 3.     In a significant and very unusual development, last week the Tenth Circuit granted rehearing en banc, vacating the panel decision and ordering additional briefing for consideration by the entire Court. The case has attracted substantial attention, including numerous amicus briefs on both sides from bank trade associations, consumer organizations, numerous Red and Blue State attorneys general, and federal bank regulators. Federal Bank Regulators Weigh in With Amicus Briefs Supporting Rehearing En Banc Both the FDIC and the Office of the Comptroller of the Currency have criticized the broader interpretation of DIDMCA's opt-out provision adopted in the now-vacated majority panel opinion by the Tenth Circuit. 1.     The FDIC originally supported Colorado during the Biden Administration but then shifted its support to the banks' position during the second Trump Administration and filed an amicus brief that supported rehearing en banc and aligned with the industry view. 2.     The OCC emphasized that the panel decision could undermine the goal of Section 521 of DIDMCA to create parity between state and national banks and would undermine the dual banking system and introduce significant uncertainty into the lending market. These positions underscore the potential systemic impact of the case. Practical Implications for State Banks Engaged in Interstate Lending As a result of the enactment of the Oregon law and if additional states enact similar legislation, out-of-state banks lending to residents of a state which has enacted an opt-out statute may face difficult choices: 1.     Comply with state-specific rate caps; 2.     Exit certain markets altogether; 3.     File a declaratory judgment action seeking injunctive relief against the state agency charged with enforcing the opt-out statute based on Federal preemption of such statute under Section 27 of the Federal Deposit Insurance Act. The uncertainty extends beyond origination. Secondary market participants may face increased due diligence burdens, as determining where a loan is "made" becomes more complex—especially in an era of digital lending and mobile consumers. Broader Industry Impact The implications could be far-reaching: 1.     Reduced interstate lending by state-chartered banks; 2.     Migration to national bank charters to preserve rate exportation authority; 3.     Fragmentation of the regulatory landscape, with a patchwork of state rules; 4.     Increased compliance complexity for bank–FinTech partnerships and loan purchasers. In short, the dual banking system could face renewed pressure if state-chartered banks cannot export their home state interest rates when making interstate loans to borrowers in opt-out states, which would deprive them of competitive parity with national banks. What Comes Next? Several developments will be critical to watch: 1.     The outcome of the Tenth Circuit's en banc review; 2.     Whether additional states follow Oregon's lead; 3.     The potential for U.S. Supreme Court review; 4.     Federal legislative proposals that could eliminate the opt-out provision altogether (though prospects for passage appear uncertain). Key Takeaways 1.     The DIDMCA opt-out provision, long dormant, is reemerging as a potential tool for states to regulate interest rates charged to their citizens by out-of-state state banks. 2.     The determination of where a loan is "made" for purposes of Section 525 of DIDMCA is now a central legal battleground. 3.     The forthcoming Tenth Circuit en banc decision will set an important precedent with nationwide implications. 4.     A growing patchwork of state laws could significantly complicate interstate lending. 5.     The future of bank–FinTech partnerships and the dual banking system may hinge on how these issues are resolved. As these developments continue to unfold, financial institutions, regulators, and policymakers alike will need to navigate an increasingly complex and uncertain legal environment—one that may redefine the rules of interstate lending in the United States.