Author Topic: madden vs midland  (Read 4860 times)

jdrean

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madden vs midland
« on: October 04, 2015, 10:15:34 AM »
Does anyone have an opinion on the madden vs. midland lawsuit that may create havoc for p-to-p lenders?

http://www.altfi.com/article/1277_court_is_cause_for_concern_for_marketplace_lenders

Rob L

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Re: madden vs midland
« Reply #1 on: October 04, 2015, 11:09:00 AM »
State usury laws have what I found to be surprisingly low interest rate caps. See:
http://www.lendingkarma.com/content/state-usury-laws-legal-interest-rates/

Most of my LC portfolio is D&E so I expect most loans are above state usury limits.
Guess I'd get killed if LC were someday forced to comply with individual state limits.

Lovinglifestyle

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Re: madden vs midland
« Reply #2 on: October 04, 2015, 12:42:59 PM »
Lucky for now that I live in Utah.  Can't imagine lower rates and same risks.  I'd go south in a hurry.  Wouldn't mind the Fs and Gs getting rate relief if they'd make all their payments.

SeanMCA

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Re: madden vs midland
« Reply #3 on: October 04, 2015, 01:13:44 PM »
Lucky for now that I live in Utah.  Can't imagine lower rates and same risks.  I'd go south in a hurry.  Wouldn't mind the Fs and Gs getting rate relief if they'd make all their payments.

Odds are that they wouldn't get rate "relief", the loans themselves would just be ruled invalid and all the interest (and possibly the principal) would be due back to the borrowers even if the loans had long been paid off and satisfied.  How this would affect a note holder who wasn't involved in the loans themselves is uncertain because the securities purchased would be tied to loans that never legally existed.
I'm a merchant cash advance veteran exploring the p2p lending waters.

Rob L

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Re: madden vs midland
« Reply #4 on: October 04, 2015, 02:32:16 PM »
How this would affect a note holder who wasn't involved in the loans themselves is uncertain because the securities purchased would be tied to loans that never legally existed.
Good point. The loans are actually on LC's balance sheet (unless you bought whole loans I suppose). I didn't loan anyone money except LC itself.
Nightmare scenario; borrowers are entitled to clawbacks from LC from day one and it's game over. Guess stranger things have happened.
I was a happier camper before this thread was started.

Fred

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Re: madden vs midland
« Reply #5 on: October 05, 2015, 02:11:46 AM »
Here is the link to the complete Court's decision:

http://www.ca2.uscourts.gov/decisions/isysquery/8fee7fb6-706b-42d6-b577-c5b837ace9e1/2/doc/14-2131_opn.pdf

Read page 5: Madden's $5000 credit card was charged-off in 2008, and sold to Midland.

Midland is more like a "debt collector" rather than "investor"; I think Midland is playing a bad game here.

Fred

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Re: madden vs midland
« Reply #6 on: October 05, 2015, 02:19:13 AM »
And shame to altfi.com and Henry Thomas for skipping this important charged-off detail.

Henry seems to have the "publish or perish" mentality -- publishing about 10 articles per week -- http://www.altfi.com/author/57.

Seems more like a salesman trying to fill his quota rather than a real journalist.

Rob L

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Re: madden vs midland
« Reply #7 on: October 05, 2015, 05:11:18 PM »
Here is the link to the complete Court's decision:

http://www.ca2.uscourts.gov/decisions/isysquery/8fee7fb6-706b-42d6-b577-c5b837ace9e1/2/doc/14-2131_opn.pdf

Read page 5: Madden's $5000 credit card was charged-off in 2008, and sold to Midland.

Midland is more like a "debt collector" rather than "investor"; I think Midland is playing a bad game here.

Thanks for the link to "ground truth". Read the decision and now I have a splitting headache  ???

If I understand the "legal speak" then the court doesn't seem to make any distinction between debt collectors or investors. If the loan isn't somehow connected to a national bank then the National Bank Act (NBA) doesn't apply. When Web Bank issues and then sells loans to LC it's no longer connected to them. Sleepless nights in LC lawyer land.

I found one ray of hope (to be addressed by the District Court on remand, and no doubt appealed one way or the other thereafter):

"The defendants contend that even if we find that Madden’s claims are not preempted by the NBA, we must affirm because Delaware law—rather than New York law—applies and the interest charged by the defendants is permissible under Delaware law. Because the District Court did not reach this issue, we leave it to the District Court to address in the first instance on remand."

Read LC as "defendant" and Utah instead of Delaware in the above quote, and it seems that's where we are.

Addendum:
Just read "some" of LC's response to the Treasury RFI. LC seems to go out of their way to completely "tie themselves at the hip" to the bank. Maybe Madden has a bit to do with that.

From the LC response to the Treasury RFI:

"While Lending Club firmly believes in the distinguishing facts of its marketplace program from Madden, Lending Club and its issuing bank partners are assessing a variety of options to try and further strengthen their position including:

 further clarifying the choice of law elements of the issuing bank’s documents and overall transaction elements as to more firmly tie the transaction to the issuing bank’s charter jurisdiction;
 enhancing the aspects of the program, including the issuing bank’s ongoing involvement in the program, to further distinguish the facts of Madden; or
 the acquisition of licenses by non-bank buyers of loans to enable the continued enforcement of the agreed upon contractual rate.

We believe these changes will continue to allow the marketplace program to operate in its efficient manner."
« Last Edit: October 05, 2015, 06:19:18 PM by Rob L »

Fred

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Re: madden vs midland
« Reply #8 on: October 06, 2015, 01:03:50 AM »
Read LC as "defendant" and Utah instead of Delaware in the above quote, and it seems that's where we are.

I think neither LC nor I would pursue any borrowers whose loans are already charged-off.

Midland did.

IMO, borrowers with charged-off loans already pay the consequences (a blemish in their credit report, difficulty of getting loans with good rates, etc.).  If they should pay the full amount of charged-off loans plus interests, that would be double-dipping on the creditor side.

Unfolder

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Re: madden vs midland
« Reply #9 on: October 06, 2015, 11:34:38 AM »
Could someone who understands explain this situation in brief? Are people accusing LC of violating state usury laws? That's ridiculous...no one held borrowers' feet to the fire for these loans. Why are national credit card companies allowed to charge 25-30% interest (which I assume violates usury in the named states) but not LC?

Fred93

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Re: madden vs midland
« Reply #10 on: October 06, 2015, 05:01:08 PM »
Could someone who understands explain this situation in brief?

No.  The lawyers who understand it don't speak in brief.  (They wear briefs and they write briefs, but...)

Quote
Are people accusing LC of violating state usury laws?

No.  The guys in the lawsuit were accused of same, and the court agreed.  Whether that applies to LC is the subject of much speculation and many legal details.

My theory is that this will, in the end, have zero impact on LC.   

Quote
That's ridiculous...no one held borrowers' feet to the fire for these loans. Why are national credit card companies allowed to charge 25-30% interest (which I assume violates usury in the named states) but not LC?

That's logic, but its not legal logic, so probably not the relevant logic.  You would have to read all the laws and regulations and figure out exactly what they say, and what each word means, and who applies to what. 

Rob L

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Re: madden vs midland
« Reply #11 on: October 06, 2015, 05:14:24 PM »
(They wear briefs and ...)

You know this how?  ;D   (I know; cheap shot, but maybe funny).

Fred93

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Re: madden vs midland
« Reply #12 on: October 06, 2015, 06:05:45 PM »
(They wear briefs and ...)
You know this how?  ;D   (I know; cheap shot, but maybe funny).

touche

SeanMCA

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Re: madden vs midland
« Reply #13 on: October 06, 2015, 11:24:28 PM »
"The court explained that the NBA’s preemption protections only apply to non-bank entities performing tasks on a bank’s behalf (e.g. bank subsidiaries, third-party tax preparers). If a bank assignee is not performing a task on a national bank’s behalf, the NBA does not protect the assignee from otherwise applicable state usury laws. Therefore, as Midland’s collection efforts were performed on its own behalf and not on behalf of the national bank that originated Madden’s account, the appellate court found that New York’s usury laws were not preempted and that Midland could be subject to New York’s usury restrictions."

http://debanked.com/2015/08/madden-vs-midland-funding-llc-what-does-it-mean-for-alternative-small-business-lending/

The ruling basically invalidated the bank charter model in 3 states. It makes no difference that Midland was a debt collector or that the debt was charged off. Lending Club's CEO has already acknowledged this and believes their choice of law provision is the only thing keeping their loans enforceable in those 3 states for now.
I'm a merchant cash advance veteran exploring the p2p lending waters.

TAH

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Re: madden vs midland
« Reply #14 on: October 11, 2015, 10:15:41 AM »
Could someone who understands explain this situation in brief? Are people accusing LC of violating state usury laws? That's ridiculous...no one held borrowers' feet to the fire for these loans. Why are national credit card companies allowed to charge 25-30% interest (which I assume violates usury in the named states) but not LC?

I found this link:  https://newoak.com/thought-leadership/usury-laws-making-comeback-examining-madden-v-midland-funding/
which IMO is short enough to be read and understood by non-lawyers.