Adam J. Levitin

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The “valid-when-made” doctrine holds that if a loan was not subject to a state usury law when it was made, it can never subsequently become so upon transfer. The doctrine is supposedly a “well-established and widely accepted” common law doctrine that is a “cardinal rule” of banking law endorsed by multiple Supreme Court decisions.

This Article demonstrates the valid-when-made doctrine’s spurious historical pedigree. The doctrine is a modern invention, fabricated by attorneys for financial services trade associations in the appeals from the Second Circuit’s Madden decision. It rests solely on decontextualized and misinterpreted quotations from nineteenth century cases dealing with entirely different issues in usury law. Simply put, the valid-when-made doctrine is not valid, but made up, and its historicity cannot serve as a basis for legal interpretation.

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