A judge could rule this fall blocking one of Oregon Democrats’ main affordability efforts aimed at preventing predatory lenders from exploiting a loophole in federal law.
Oregon has an interest rate cap of 36%, but since 2020, lenders have issued more than 31,000 loans totaling at least $61 million with interest rates exceeding that cap, according to the Oregon Division of Financial Regulation.
That’s because some out-of-state lenders use a federal law to bypass Oregon’s interest rate cap. The Depository Institutions Deregulation and Monetary Control Act of 1980 allows state-chartered banks to export their interest rates to other states.
While 98% of lenders in Oregon don’t go beyond the state’s interest rate cap, at least five lenders, primarily in Utah, use this loophole to give Oregonians loans with interest rates ranging from 73% to over 200%, according to Rep. Nathan Sosa, the Hillsboro Democrat and attorney who sponsored House Bill 4116.
Most of those loans are short-term and average $3,000, Sosa said.
Democratic lawmakers passed House Bill 4116 to close that loophole, framing it as one of their main bills addressing affordability in the 2026 legislative session. The law opts Oregon out of the federal law so out-of-state lenders can no longer charge Oregonians interest rates exceeding the state’s cap on loans of $50,000 or less.
A week after the law took effect, the National Association of Industrial Bankers, the American Financial Services Association and the Online Lenders Alliances sued Oregon in the U.S. District Court for the District of Oregon, alleging Oregon is violating the Commerce and Supremacy Clause by attempting to regulate the interest rates of out-of-state banks.
They asked a judge to block Oregon’s law, saying out-of-state lenders would lose revenue, customers, retailers and partners to the national banks against which they compete. Judge Ann L. Aiken has not yet scheduled a hearing, and the lending groups and the state are submitting briefs arguing their case by September.
Bill sponsor optimistic Oregon law will prevail in court
The lawsuit didn’t come as a surprise, Sosa said in a phone interview.
After Colorado in 2023 adopted a similar law opting out of the 1980 banking law, some of the same financial groups sued the state, using a similar argument they’re using against Oregon.
The lending groups argued that federal law only lets states regulate banks within their own boundaries, not out-of-state lenders. Colorado disagreed, arguing that any loan involving a borrower located in Colorado is subject to state rules.
A federal district court blocked Colorado from enforcing its law in 2024, but a three-judge panel of the 10th Circuit Court of Appeals reversed the district court’s decision in late 2025. The plaintiffs filed an appeal to that decision and requested an en banc review, meaning all the judges on the 10th Circuit will have to listen to the argument again and make a collective decision. That hearing is scheduled Aug. 18.
“The three judges ruled that Colorado had the right to opt out, so in working with the Department of Consumer and Business Services and the Department of Justice here in Oregon, we were confident that we could prevail if a lawsuit was opened,” Sosa said.
Oregon is in the 9th Circuit, so a 10th Circuit decision in the Colorado case wouldn’t create a binding precedent for Oregon. However, judges often look to court decisions from other regions when deciding cases.
Colorado, Iowa and now Oregon are the only states that have opted out of the 1980 federal law.
Unlike Iowa, which opted out of the federal law 46 years ago, Oregon and Colorado’s reasoning to opt out is based on a new claim, said Danielle Arlowe, the head of state affairs for the American Financial Services Association, which is involved in both lawsuits.
“The theory that I think Oregon and Colorado are operating on is that in opting out, they can control not just what their own state charter banks can do, but what other state charter banks can do as it applies to consumers in Oregon,” Arlowe said in an interview.
In doing so, the states are reinterpreting longstanding interstate banking rules, the plaintiffs allege.
Additionally, the plaintiffs argue the law won’t necessarily protect Oregonians seeking quick cash.
“When you give consumers fewer choices, it doesn’t mean that they have better choices,” Arlowe said. “It means that the consumers who don’t have as many options have even fewer options.”
Sosa rebutted that argument, saying Oregonians who are in a financial crisis shouldn’t be lured into predatory high-interest loans.
“Of the 98% that are complying with our laws, there are several, according to the Division of Financial Regulation, that offer loans to people with no credit or poor credit,” he said. “So, credit options will still be available to individuals who are struggling without putting them into a situation where they are going to have to pay triple-digit interest on a loan.”
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