Yesterday, online marketplace lenders were dealt a blow as the U.S. Supreme Court declined to review the U.S. Court of Appeals for the Second Circuit’s decision in Madden v. Midland Funding, LLC, which limits a non-bank’s ability to enforce the interest rates charged by an assigning national bank.
The denial of certiorari by the high court means the recent class action lawsuits against LendingClub Corporation are probably only the first of more lawsuits to come against marketplace lenders that use a partner bank origination model. As we discussed in an earlier Alert, sponsors and other participants involved in the securitization of marketplace lender loans may also be at risk to the extent cash flows available to investors become impaired.
There is, however, a silver lining for online marketplace lenders. Although the Supreme Court’s refusal to review the decision may influence other courts throughout the country, the decision is only binding on courts located within the Second Circuit (New York, Connecticut and Vermont). Whether borrowers and investors outside of these jurisdictions would find the same success as the plaintiff in Madden remains to be seen.
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