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ELEVENTH CIRCUIT GRANTS REHEARING EN BANC IN GEORGIA PAYDAY LENDING CASE

The Eleventh Circuit Court of Appeals on December 28, 2005 ordered that BankWest, Inc. v. Baker , 411 F.3d 1289 (11th Cir. 2005) be reheard by the court en banc and the previous panel’s opinion be vacated. The court’s order contains no discussion of the merits. It is not known yet whether the case will be designated for oral argument, and the schedule for filing en banc briefs has not been announced.

On June 10, 2005, the Eleventh Circuit had affirmed the district court decision denying a preliminary injunction to bar enforcement of the Georgia Payday Lending statute. Provisions of the statute restrict a payday loan store from acting as an agent for an out-of state bank when the agreement grants the in-state agent “the predominate economic interest” in the loan. After declining to give Chevron deference to the FDIC position expressed in “opinion letters, policy statements, manuals and the like,” the court found (i) no field preemption in Section 27(a) of the Federal Deposit Insurance Act, 12 U.S.C. § 1831d(a), (ii) no conflict preemption between the Georgia statute and Section 27(a) and (iii) express preemption in Section 27(a) that is too narrow in scope to reach the relevant portion of the statute. The court concluded that the portion of the statute that voids an out-of-state bank’s loan procured by an in-state agent under a prohibited agency agreement is not preempted.

In their Petition for Rehearing En Banc, Appellants argued that (i) this case is of exceptional importance; (ii) the majority’s holding permitting indirect state regulation of interest rates conflicts with governing Supreme Court preemption opinions; (iii) the Georgia statute’s “de facto ” lender presumption conflicts with prior Circuit precedent and Supreme Court preemption opinions; and (iv) the majority opinion conflicts with governing Supreme Court opinions requiring deference to agency determinations.

The Eleventh Circuit’s decision to grant a rehearing in this Georgia Payday Lending case represents an important interim victory for all banks, especially state banks that operate lending programs through agents or brokers. The outcome of the rehearing in BankWest likely will reverberate throughout the banking industry.

Judy Scheiderer and Jeff Langer