A federal lawsuit filed in June could undo the interest rate cap that Hillsboro Rep. Nathan Sosa pushed through the Oregon Legislature this year to stop out-of-state lenders from charging Oregonians rates as high as 200%.

Three banking industry groups sued Oregon on June 15, ten days after House Bill 4116 took effect, arguing the law violates the U.S. Constitution's Commerce and Supremacy Clauses, the Oregon Capital Chronicle reported. U.S. District Judge Ann L. Aiken has not scheduled a hearing, but both sides must submit legal briefs by September, with a ruling expected this fall.

The stakes are concrete. At least five lenders, primarily based in Utah, charged Oregonians interest rates ranging from 73% to over 200%, according to Sosa. The Oregon Division of Financial Regulation found evidence of more than 31,000 such loans totaling at least $61 million since 2020. Most are short-term and average $3,000.

What the law does

HB 4116, signed by Gov. Tina Kotek on April 7, exercises Oregon's right to opt out of a 1980 federal banking law that allowed out-of-state lenders to sidestep Oregon's 36% interest rate cap on consumer loans of $50,000 or less. Sosa, a Democrat representing House District 30 covering Hillsboro, Helvetia and Rock Creek, sponsored the bill and chairs the House Committee on Commerce and Consumer Protection.

Only three states have opted out. Colorado did so in 2023, and Iowa opted out 46 years ago. Oregon and Colorado's opt-outs rest on a newer legal theory: that a state can control what out-of-state banks charge borrowers within its borders.

The National Association of Industrial Bankers, the American Financial Services Association and the Online Lenders Alliance filed suit in the U.S. District Court for the District of Oregon. They want a preliminary injunction blocking the law, arguing Oregon cannot regulate interest rates charged by banks operating under other states' laws. The plaintiffs also contend Oregon's law goes further than Colorado's by applying to loans Oregon residents obtain outside the state.

Danielle Arlowe, head of state affairs for the American Financial Services Association, told the Oregon Capital Chronicle that restricting lender options will hurt the borrowers the law aims to protect. "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 says Oregon will prevail

Sosa pointed to a favorable ruling in a parallel Colorado case. A three-judge panel of the 10th Circuit Court of Appeals reversed a lower court decision that had blocked Colorado's similar law in late 2025. The same banking groups have requested a rehearing by the full 10th Circuit, scheduled for Aug. 18.

Oregon sits in the 9th Circuit, so the Colorado ruling would not bind Judge Aiken, though courts often look to other circuits' reasoning. Sosa told the Oregon Capital Chronicle he was confident in Oregon's position, citing the 10th Circuit panel's finding that Colorado had the right to opt out and his coordination with the Oregon Department of Consumer and Business Services and the Department of Justice.

He also pushed back on the industry's argument that borrowers would lose access to credit, noting that 98% of Oregon lenders already comply with the 36% cap and that some within that group offer loans to people with no credit or poor credit.

What's next

The 10th Circuit hears the full Colorado case on Aug. 18. Judge Aiken's ruling on Oregon's law is expected this fall.