Finovation Friday | Midland v Madden, bots + banks

Midland v Madden: Marketplace lenders continue to follow the Midland case, which questions “Whether the National Bank Act, which preempts state usury laws regulating the interest a national bank may charge on a loan, continues to have preemptive effect after the national bank has sold or otherwise assigned the loan to another entity”.

 

As a refresher, the marketplace lending ecosystem was spooked when a court ruled that the National Bank Act does not apply after a loan was sold, meaning that the new state-level usury rate applies. This affects many marketplace lenders who originate loans through banks such as WebBank, and buyers of those loans. The case has been requested to go to the Supreme Court.

 

However, in a brief filed with the Supreme Court, the US Solicitor General Donald Verrilli believes that the Second Circuit decision was wrong. He states, “The court of appeals’ decision is incorrect. Properly understood, a national bank’s Section 85 authority to charge interest up to the maximum permitted by its home State encompasses the power to convey to an assignee the right to enforce the interest-rate term of the agreement.”

 

However, he also recommends that the case not be heard by the Supreme Court. If this is the case, then the battle will continue to play out in the lower courts. But for once, the marketplace lenders have been given some reprieve in a very difficult last few months for the industry.

 

1. Coffee purveyor by day, depository institution by night: Starbucks is well known for the success of their card and mobile app payments platform, and has hit $1.2 billion loaded onto its prepaid Starbucks cards and app. That is 300 million lattes at $4 per drink! Money parked at Starbucks has doubled since 2014, and Starbucks has plans to launch a prepaid Visa cardlater this year in partnership with Chase.
2. The bots are coming… Keith Armstrong from Abe.ai, a personal finance bot, discusses how bots can help banks connect with customers and provide real-time recommendations. Bank of America has already announced plans to use Facebook’s Messenger platform to interact with customers using bots and AI. TD Bank will service customers through the platform as well, but with live agents rather than bots.
3. Mobile banking startups are everywhere. Varo Money is raised more than $27MM, led by Warburg Pincus. In a departure from the theory of “unbundling banks”, Varo is considering seeking its own bank charter.  Tink, a mobile banking app in Sweden similar to Mint, raised $10MM to help support their expansion from a personal finance app to a virtual bank.  US-based mobile bank account provider Chime has raised $9MM.

 

Have a great weekend!