Setback for Marketplace Lending After Death of US Supreme Court Justice

The US Supreme Court appears less likely to hear and overturn the lower-court decision in Madden v. Midland Funding after the unexpected death of Justice Antonin Scalia thus affecting marketplace lenders, according to a recent American Banker article.

In December 2015, SFIG and the Securities Industry and Financial Markets Association submitted an amicus curiae brief to the US Supreme Court in support of Midland Funding requesting judicial review of Second Circuit Court of Appeals’ decision in the case. Originally, a vote on whether to grant review was expected in February.

The outcome of Madden v. Midland Funding could have far-reaching implications for the securitization of consumer loans, including those funded through marketplace lending channels. If the Second Circuit’s decision is upheld, then industry participants would need to evaluate the applicability of state usury laws for loans included in a securitization.

According to American Banker, even if the Supreme Court hears the case, the votes of five out of the eight remaining justices would be necessary to overturn the Second Circuit’s decision.

If the Supreme Court splits four to four on whether to overturn the ruling, the earlier decision would remain binding in New York, Connecticut and Vermont.

Before, the votes of five Republican justices would have been enough for a reversal. Now, at least one of the four Democratic appointees, who more typically side with consumers in disputes with businesses, would have to be persuaded.

To join SFIG’s Marketplace Lending Committee, please contact Jennifer.Wolfe@sfindustry.org.

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