The Colorado law is aimed at state-chartered banks and fintech firms that charge predatory interest rates
- Federal appeals court upholds Colorados right to apply its interest rate limits to loans made by out-of-state banks to state residents
- Decision could reshape bank-fintech partnerships that rely on state-chartered banks to bypass local lending caps
- National banks, which arent subject to state rate limits, may become preferred partners for fintech lenders
A federal appeals court has ruled that Colorado can enforce its own interest rate caps on loans made by state-chartered banks from other states to Colorado residents, a landmark decision that could ripple through the consumer lending and fintech industries, making it harder for predatory lenders to operate across state lines.
In a 21 ruling on Nov. 10, the U.S. Court of Appeals for the 10th Circuit overturned a lower court injunction that had blocked Colorado from applying its 2023 lending law to out-of-state banks. The decision means that banks based elsewhere must now comply with Colorados lower rate limits when lending to people who live in the state.
Judge Gregory A. Phillips, writing for the majority, said Congress gave states the power to opt out of federal rate allowances under a 1980 law, allowing them to ensure that loans made in the state meet local standards. We acknowledge that this decision may cause some immediate uncertainty, Phillips wrote, but concluded that Colorado acted within its rights under federal law.
Fintech partnerships face new scrutiny
The ruling could have major implications for bank-fintech partnerships arrangements in which technology firms team up with state-chartered banks to issue loans nationwide. Many of those loans carry interest rates that would be illegal under the borrowers home-state laws but are allowed under the banks charter state.
By upholding Colorados authority, the court opened the door for other states to assert similar powers, potentially upending how fintech lenders price and issue credit.
The banks interpretation robs the state of one of its oldest police powers, creating a race to the bottom, Colorado Senior Assistant Attorney General Brian Urankar argued before the court earlier this year.
Industry groups, including the National Association of Industrial Bankers, warned the decision could push banks to seek national charters, which are exempt from state interest rate limits. That shift could concentrate more lending power in federally chartered institutions and reduce flexibility for smaller state-chartered banks. "Industrial" banks are generally chartered in states without strict interest rate caps.
Dissent warns of patchwork lending rules
Judge Veronica S. Rossman dissented, saying the majoritys interpretation created a practical problem by making loan regulation inconsistent across states. I struggle to see how this patchwork approach which abides a level of disuniformity Congress never intended will be administrable in our world of interstate, online banking, she wrote.
Rossman argued that the law was originally meant to regulate banks, not protect borrowers, and that loans made in a state should refer to the lenders location, not the borrowers.
What happens next
Colorados law, known as House Bill 1229, was enacted in 2023 to stop out-of-state banks from bypassing local lending caps. The state joined Iowa and Puerto Rico as the only jurisdictions to use the federal opt-out provision.
For now, the decision applies only to loans made to Coloradans, but observers say other states could soon follow Colorados lead. The caseNational Association of Industrial Bankers et al. v. Weiser et al.marks the first time a federal appellate court has sided with a state on this issue, setting the stage for potential challenges in other circuits or even the U.S. Supreme Court.
As Judge Phillips noted, Congress could have focused on the lender but chose instead to allow states to decide whether loans made to their residents should reflect their own interest rate standards.
Posted: 2025-11-13 18:28:08
