On June 5, 2023, Colorado Governor Jared Polis signed HB23-1229, a new law to opt the state out of Sections 521 to 523 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (“DIDMCA”).  The legislation takes effect on July 1, 2024, and applies to all consumer credit transactions made or renewed on or after the effective date. Once enacted, lenders will no longer be able to apply the usury provisions found in their home state to Colorado borrowers as permitted under DIDMCA. Currently, Iowa and Puerto Rico are the only other jurisdictions where out-of-state depository institutions and state chartered banks may not be able to rely on federal interest rate preemption to charge interest in excess of the state usury limits.

What is DIDMCA?

DIDMCA is a federal law enacted in 1980 to address various issues in the banking industry and to regulate depository institutions, such as banks and credit unions, including the regulation of usury provisions. Under Section 521 of DIDMCA, eligible lenders can contract for the interest permitted by the state in which the lender is located (this is typically where the lender is headquartered, but it could also be any state where the lender performs certain activities in a branch) and export that interest into other states, even if those state laws would otherwise not permit those rates. Given that many states have no usury limits, DIDMCA preemption essentially allows eligible lenders to charge rates without restriction in all applicable states.  

Under Section 525 of DIDMCA, however, states can opt out of the usury provisions, thereby allowing them to maintain their own restrictions on interest rates and related fees. Following its enactment, several states, including Colorado, took advantage of Section 525 and opted out of the federal usury preemption. Over time, most jurisdictions (other than Iowa and Puerto Rico) eventually opted back in. As DIDMCA was unclear regarding expiration of the opt-out period, states are still able to opt out at any time. As such, once HB23-1229 takes effect, Colorado will longer be subjected to DIDMCA.

Despite its name, DIDMCA is not limited to depository institutions. The benefits of preemption are also available to mortgage lenders that make “federally-related mortgage loans,” as defined under federal law. Non-depository lenders that make at least $1 million in first lien mortgage loans annually may also be able to benefit from the DIDMCA preemption.  

Implications for Lending in Colorado

Proponents of the legislation argue that these measures will help to protect Colorado consumers from excessive interest rates and charges. Lending industry advocates, however, believe that the usury restrictions will have a chilling effect on lending in the state and will adversely impact the most economically challenged borrowers. As there is still uncertainty regarding how courts will interpret Colorado’s DIDMCA opt-out, lenders should be vigilant with respect to the changes in the legal landscape to ensure compliance and minimize the risk of becoming the target of enforcement activity.

Did You Know?

RegCheck® users can configure their company settings to apply DIDMCA preemption at the state level. For all states that have not opted out of DIDMCA, users can indicate in which states DIDMCA preemption should apply to their test results. In the states indicated, RegCheck will not test loans against the applicable state usury and fee thresholds in accordance with how the state recognizes DIDMCA. As we cannot provide guidance as to whether your company qualifies for DIDMCA preemption, we recommend that you consult with your own legal counsel before adjusting your account settings.

If you are an existing RegCheck user, please contact the RegCheck support team to learn more about this feature. If you are not an existing RegCheck client and would like a demonstration of this feature and more, please contact your Asurity sales representative to schedule a presentation.

Jonas Hoerler is Chief Regulatory Counsel for Asurity’s RegCheck product team. Jonas has years of mortgage lending experience, with an emphasis on automated lending compliance. Jonas has managed the mortgage lending compliance requirements of multiple federal agencies and state jurisdictions, including but not limited to California, New York, Texas, and New Jersey, U.S. Department of Veterans Affairs, Federal Housing Administration, Fannie Mae, and Freddie Mac. He has also assisted with client negotiations with major lending institutions and nationally recognized banks. Jonas currently oversees the implementation of state, federal, and agency guidelines in RegCheck, an industry leading mortgage compliance software solution, and serves as Of Counsel to the Sandler Law Group to assist in all areas of mortgage lending compliance.