10th Circuit Reverses Colorado's Interest Rate Caps on Out-of-State Banks

• The National Association of Industrial Bankers sued Colorado to block a law that allowed the state to opt out of DIDMCA.
• U.S. District Judge Daniel Domenico granted a preliminary injunction against the law in 2025, finding that loans are made by the bank, not where the borrower is located.
• A 10th Circuit panel initially reversed the lower court's preliminary injunction, but two judges dissented from the majority opinion, creating a split with other federal courts. The full 10th Circuit has granted an en banc rehearing, and the preliminary injunction remains in effect.

The fundamental flaw with the state’s position is this is a law about federalism, not protectionism.

The National Association of Industrial Bankers, along with other industry groups, sued Colorado in March 2024 to block a law that allowed the state to opt out of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). The law, which was enacted in 1980, protects bank federalism by allowing states to set interest rates for loans made within their borders. However, Colorado's Uniform Consumer Credit Code, passed in 2023, sought to opt out of DIDMCA and cap the interest rates state-chartered banks could offer local consumers. The industry groups argued that this move would be protectionist and undermine federalism. U.S. District Judge Daniel Domenico granted a preliminary injunction against the law in 2025, finding that loans are made by the bank, not where the borrower is located. Colorado appealed, and a 10th Circuit panel initially reversed the lower court's preliminary injunction. However, on further review, two judges dissented from the majority opinion, creating a split with other federal courts. The 10th Circuit has since granted a rehearing en banc, vacating the panel's decision, and the preliminary injunction remains in effect while the full court considers the case.

The Depository Institutions Deregulation and Monetary Control Act was enacted in 1980 to protect bank federalism by allowing states to set interest rates for loans made within their borders. However, the law also includes an opt-out provision that allows states to exempt themselves from its provisions. Colorado's Uniform Consumer Credit Code sought to take advantage of this provision to cap the interest rates state-chartered banks could offer local consumers. But the industry groups argued that this move would be protectionist and undermine federalism. The case highlights the tension between federalism and protectionism in banking regulation, with some arguing that states should have more control over interest rates, while others see it as a threat to national uniformity.

The outcome of this case has significant implications for lenders operating within Colorado. If the 10th Circuit's en banc decision ultimately reverses the preliminary injunction, state-chartered banks may be able to offer higher interest rates to consumers. This could impact lending practices and compliance obligations for out-of-state banks operating within the state. Lawyers advising clients on interest-bearing loans should watch for the potential reversal of Colorado's interest rate caps, which could have far-reaching consequences for the banking industry.

Lawyers advising clients on interest-bearing loans should watch for the potential reversal of Colorado's interest rate caps, which could impact lending practices and compliance obligations for out-of-state banks operating within the state.

Source: Original reporting via Courthouse News