If a Bank Made the Loan in California, It Doesn’t Matter What Happened Next, Federal Court Holds

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There’s no reason to examine whether a party intended to enter into a usurious loan if there is a constitutional exemption that permitted the lender to make the loan in the first place, a federal court in California’s central district ruled. In Jamie Beechum et al. v. Navient Solutions, Inc. et al, a student loan borrower argued that loans made by Stillwater National Bank and Trust Company, are a sham because the defendants who bought the loans from Stillwater (who were not a bank) originated, underwrote, funded, and bore the risk of loss on the loans.

Beechum asked the court to examine the substance and intent of the agreements between the bank and the defendants, which they claim were designed specifically to evade state usury laws. The court did not believe it was necessary to look beyond California’s constitutional exemption since both plaintiff and defendant agreed that Stillwater Bank was the lender. The complaint was therefore dismissed.

As a secondary defense, defendants had also contended that as a national bank, Stillwater was also exempt from state usury laws under the National Bank Act, but the court did not even have to consider that to arrive at their conclusion.

A good analysis of the case (including why buying a loan from a bank differs from buying a loan from a tribe) was written in Leasing News by Tom McCurnin, a partner at Barton, Klugman & Oetting in Los Angeles, California.

Last modified: January 27, 2017
Sean Murray


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