On March 1, 2018, the US District Court for the District of Colorado ruled in the case of Meade v. Avant, Civ. A. No. 17-cv-0620-WJM-STV, remanding the claims of the Administrator of the Colorado Uniform Consumer Credit Code (“Administrator”) to Colorado state court. 

Avant is a Colorado supervised lender. It had entered into a lending program agreement with WebBank, a Utah chartered industrial bank.  Under that agreement, WebBank makes loans to consumers who apply for and obtain loans through Avant’s website.  Within two days of making the loan, WebBank sells the loans to third-party purchasers, including Avant.  Following a compliance examination, the Administrator brought suit against Avant in Colorado state court, alleging that Avant charged excess finance and delinquency charges in violation of Colorado law.  Avant sought to remove the Administrator’s claims to the US District Court for the District of Colorado, arguing that because the loans were originated by a state-chartered bank regulated under the Federal Deposit Insurance Act (FDIA) that the Colorado state laws were completely preempted, presenting a federal question and therefore creating subject matter jurisdiction in the federal courts. 

The Colorado district court remanded the claim to state court, adopting the recommendation of a magistrate judge.  In adopting the recommendation of the magistrate judge, the court found that the claims of the Administrator are not completely preempted by the FDIA,  and therefore because the Administrator’s claims, on their face, do not raise any issue of federal law, the district court did not have jurisdiction over those claims.  The court’s ruling was limited to the question of whether there was “complete preemption” and leaves open the question of whether express or conflict preemption might apply.  The district court’s decision largely rejected the argument that complete preemption “travels with the loan” and suggested that the question of complete preemption turns on whether the bank, or the non-bank holder of the loan, is the true party in interest.

The court’s decision addressed four arguments advanced by Avant. 

  1. Complete Preemption
    First, the court rejected Avant’s argument that the Administrator’s claims are completely preempted by the FDIA.  In making this ruling, the court rejected Avant’s (i) textual argument that Section 27 applies to “loans” and not to “banks,” (ii) reliance on two cases finding preemption in other contexts and (iii) argument that the Administrator was trying to avoid complete preemption by suing the wrong party.  

    1. Textual Argument. Avant argued that Section 27 of the FDIA applies to “loans made” by a state-chartered bank, regardless of who is holding the loan, and that under principles of assignment, the holder of the loan stands in the shoes of the state-chartered bank. The court found that, read as a whole, 12 USC § 1831d governed the conduct of, and potential actions against, state-chartered banks and was not intended to apply to the “loans made” by that bank, regardless of the entity holding the loan.  Thus, the court concluded that the statute did not reflect congressional intent to completely displace all state law, including regulation of lenders who are not state-chartered banks. 

    2. Case Law. The court rejected Avant’s reliance on Beneficial National Bank v. Anderson and Sawyer v. Bill Me Later, Inc. As to Beneficial, the court noted that the Supreme Court eight times within that decision framed the issue as whether the National Bank Act provided an exclusive cause of action for usury claims “against national banks.” Based on that language, the district court rejected the contention that Beneficial supported Avant’s argument that complete preemption “travels with the loan.” With respect to Sawyer, the court noted its view that Sawyer was not dealing with the issue of whether there was complete preemption for purposes of federal question jurisdiction, but instead held that Section 27 expressly preempted the usury claim under state law. 

    3. Suing the Wrong Party. The court rejected Avant’s argument that the Administrator was seeking to evade complete preemption by suing the wrong party. The court reviewed the Administrator’s allegations supporting her contention that Avant was the true lender and concluded that the Administrator was not manipulating her pleadings to avoid preemption.  

  2. Cases Addressing Remand Issues
    The court then addressed several cases in which a remand determination turned on a preemption analysis. First, the court rejected Avant’s argument that Ace Cash could be distinguished based on the fact that the defendant was an “agent” for the bank rather than an assignee. Because the court rejected the argument that complete preemption “travels with the loan,” the court did not view Avant’s position as an assignee as a relevant fact.  The court then distinguished the Krispin case on the grounds that the bank in Krispin was a wholly-owned subsidiary of the store, which issued the credit, processed and serviced customer accounts, and set the interest rate and late fees, which led the Krispin court to find that the bank was the true party in interest.  The court also noted that the Fourth Circuit’s decision in Vaden turned on the question of whether the bank was the true party in interest. The court found that the allegations in Avant’s case suggested that the bank was not the real party in interest and that, therefore, complete preemption should not apply. 

  3. True Lender Analysis
    The court rejected Avant’s argument that the magistrate’s recommendation treated the true lender issue as controlling on the remand issue. The court went on to hold that (a) the allegations in the complaint govern under the well-pleaded complaint rule for purposes of determining subject matter jurisdiction and (b) Avant’s argument that the bank (and not Avant) was the true lender was at best a defense that could not create federal jurisdiction.

  4. Valid When Made Rule
    Both Avant and amici contended that the Administrator’s claims are an attack on the bank’s power to originate and sell loans and also on the long-standing “valid-when-made” rule. The court recognized the significance of that issue, but ruled that the valid-when-made rule is not relevant to the complete preemption argument.  The court noted that the valid-when-made rule does not lead to an inference in favor of an exclusive federal forum and that Avant could still rely on a valid-when-made defense at the state court to argue for express or conflict preemption of the Administrator’s claims.