Colorado's four-year-old effort to stop out-of-state banks from charging its residents sky-high interest rates landed back in front of federal judges this week, and this time the full bench of the 10th U.S. Circuit Court of Appeals seemed to be leaning the state's way. The en banc panel heard arguments over whether Colorado can enforce its 21% interest rate cap on loans made by banks chartered elsewhere but marketed to Colorado consumers.
A Law Born From a National Trend
The dispute traces back to House Bill 1229, which Colorado lawmakers passed in 2023 to opt out of a federal provision that otherwise lets banks export their home state's interest rates nationwide, according to the Denver Gazette. The law was designed to prevent out-of-state banks from exporting higher home-state interest rates to Colorado residents, as detailed by Davis Wright Tremaine. In doing so, Colorado joined Iowa and Puerto Rico as the only jurisdictions to exercise this particular opt-out authority under Section 525 of the Depository Institutions Deregulation and Monetary Control Act of 1980, per the Denver Gazette's reporting on the case. Iowa exercised its own opt-out back in 1980 and, per Amanda J. Krause as quoted by the same report, has never faced a challenge on the grounds Colorado now faces.
The National Association of Industrial Bankers sued Colorado over House Bill 1229, arguing the law creates administrative chaos for banks trying to figure out which state's rate ceiling applies to any given loan. U.S. District Judge Daniel D. Domenico initially sided with the industry, rejecting Colorado's argument that a loan made in a state could refer to either the bank's state or the borrower's state. In June 2024, he issued a preliminary injunction blocking Colorado from applying its caps to the plaintiffs, having interpreted the phrase made in a state as referring to the bank's location rather than the borrower's.
The Panel Reverses, Then the Full Court Steps In
That injunction did not stand. A three-judge 10th Circuit panel overturned Domenico's ruling in November 2025, determining in a 2-1 decision that federal law permitted Colorado to regulate interest rates charged by state-chartered banks located elsewhere, according to Ballard Spahr. The panel ruled that loans can be made in Colorado if the consumer, the bank, or both are located there — the first federal appellate ruling to interpret state opt-out authority under Section 525 of DIDMCA. Judge Harris L. Hartz wrote that the opt-out restored states' ability to enforce usury laws against loans made to their residents by out-of-state banks, while Judge Gregory A. Phillips noted that Congress did not specify that the relevant location was the lender or originating bank. Judge Carolyn B. McHugh dissented, saying Congress used different language for bank location and states' power to regulate interest rates.
That panel decision did not end the fight. The full 10th Circuit granted a petition for rehearing en banc on April 2, 2026, formally vacating the panel's ruling and reopening the case, according to the American Financial Services Association. The court stayed its mandate and reopened briefing before holding en banc oral arguments in Denver this week. Judge Scott M. Matheson Jr. recused himself from the en banc review, and federal appeals courts, which decide the overwhelming majority of cases in three-member panels, rarely take the extra step of rehearing a case before the entire bench.
Judges Press Bankers on Where a Loan Actually Happens
At oral argument, the judges' questions suggested skepticism toward the banking industry's position. Judge Joel M. Carson III asked where a loan is made when a Colorado resident signs documents in Santa Fe from a Wyoming bank, a hypothetical that cut to the heart of the case. Attorney Russell D. Johnson, representing the banking challengers, replied that the loan is made in Santa Fe — but he also argued that banks are not compelled to offer loans in Colorado or any other state, and that Colorado's interpretation would disallow the state from exercising its police power at all.
Judge Robert E. Bacharach pushed back on the practicality of that framework, observing that under the banks' theory, lenders would need to determine the bank's location, the borrower's location, and the borrower's domicile just to set an interest rate. Judge Richard E.N. Federico asked whether preventing Colorado from stopping circumvention of its law would render the opt-out meaningless, and separately observed that Colorado was simply exercising its police power to enact consumer protections by extending its interest-rate caps. Attorney David M. Gossett, representing Colorado's side, argued the court only needed to decide whether the borrower's location matters at all.
Regulators and States Line Up on Both Sides
The case has drawn national attention well beyond Colorado's borders. Banking associations representing all 50 states and Washington, D.C. filed an amicus brief supporting the financial trade groups suing Colorado, while thirteen states and Washington, D.C. separately filed a brief backing Colorado, arguing that blocking state opt-out laws lets online lenders evade local usury laws, according to Regulatory Oversight. Federal regulators have also weighed in on opposite sides at different points: the Federal Deposit Insurance Corporation initially supported Colorado before changing its position under the Trump administration. Separately, Comptroller of the Currency Jonathan V. Gould warned in December 2025 that subjecting out-of-state state banks to local interest caps disadvantages state-chartered institutions relative to national banks, which remain exempt from state rate caps under the National Bank Act.
Colorado's own advocates have framed the law as a shortcut around messier litigation. The Bell Policy Center told the court in a July amicus brief that House Bill 1229 was designed in part to avoid lengthy, case-by-case true lender litigation over fintech credit partnerships, according to Consumer Finance Monitor. That argument echoes the broader stakes at play: Colorado's statute enforces its 21% cap directly at high-cost bank-fintech partnerships and banking-as-a-service credit programs, the business models most exposed if the state prevails.
What a Ruling Either Way Would Mean
Congress passed the underlying provision, Section 521, after rampant inflation in the late 1970s, aiming to help state-chartered banks in states with low interest-rate ceilings compete with nationally chartered banks by letting them lend at rates up to their own state's cap or slightly above the federal rate, whichever was higher. Section 525 later granted states the power to opt out of that regime and require state-chartered banks to follow state usury laws when lending to their residents.
Colorado is not alone in testing that authority. Since 2023, Minnesota, Rhode Island, Nevada, Maryland, Connecticut, and Washington, D.C. have introduced or enacted similar bills restricting out-of-state bank interest rate exportation, a trend detailed by Stinson LLP. If the full 10th Circuit sides with Colorado, it could empower states nationwide to enforce local usury caps on internet loans, potentially inviting more state legislatures to follow suit. But Judge Veronica S. Rossman, who dissented from the panel's earlier ruling on grounds that the majority misread the law's purpose, has also warned that such a ruling could create disputes over which state's rates apply when borrowers and lenders sit in different jurisdictions — a tension the en banc court will now have to resolve in the case, formally titled National Association of Industrial Bankers et al. v. Weiser et al.
