Tenth Circuit Interprets DIDMCA Opt-Out Clause, Reshaping Interstate Lending

According to a Sheppard Mullin blog, the Tenth Circuit’s decision addressing Colorado’s use of its Depository Institutions Deregulation and Monetary Control Act (DIDMCA) opt-out clause marks a pivotal development for interstate lending arrangements.

In Industrial Bankers; American Financial Services; American Fintech Council v. Phillip J. Weiser; Martha Fulford, the court concluded that Colorado may apply its own interest rate caps to loans extended to Colorado borrowers, even when those loans originate from state-chartered banks located elsewhere.

The ruling alters the regulatory expectations for entities that rely on uniform rate exportation across jurisdictions and positions Colorado’s framework as a potential model for other states evaluating their own policies.

DIDMCA permits state-chartered banks to charge interest rates equivalent to those available to national banks, permitting rate exportation unless a state exercises its statutory right to opt out. Colorado is among the limited jurisdictions that implemented such an opt-out.

Litigation began when trade associations argued that the federal scheme precluded Colorado’s constraint on out-of-state lenders. The district court accepted the position that lending is “made” where the bank is located and issued a preliminary injunction preventing Colorado from enforcing its caps during the proceedings.

On appeal, the Tenth Circuit reversed. By a 2–1 vote, the panel concluded that DIDMCA allows Colorado to apply its interest rate limits to borrowers within its borders, irrespective of the originating bank’s home state.

The majority reasoned that the opt-out clause authorizes states to regulate loans directed to their residents. The dissenter interpreted the statute to preserve longstanding parity principles linking interest rate authority to the lender’s location.

The ruling introduces significant uncertainty for interstate lending structures that depend on consistent rate exportation. Entities should examine their operational models in states that have triggered DIDMCA’s opt-out clause and anticipate further appellate or Supreme Court activity as federalism concerns continue to shape the boundaries of permissible state oversight.