Senate Democrats Lobby CFPB On Forthcoming Payday Lending Proposal

On May 14, six Senate Democrats, including Senate Banking Committee Members Jeff Merkley (D-OR) and Elizabeth Warren (D-MA), sent a letter to CFPB Director Richard Cordray asking that the CFPB consider the proposals included in Senator Merkley’s SAFE Lending Act, S. 172, in developing the forthcoming payday lending proposed regulations. That legislation primarily attempts to address perceived gaps in the regulation of Internet and offshore small dollar lenders—including those lenders affiliated with Native American tribes—and lead generators. The letter also petitions the CFPB to adopt “strong” reforms—such as minimum loan terms, fee and renewal limitations, and a waiting period between loans—that cover all types of small dollar lending. The CFPB highlighted many of these potential reforms in a March 2014 report and field hearing.

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Illinois AG Licensing Enforcement Actions Target Payday Loan Lead Generator, Lenders

On April 7, Illinois Attorney General (AG) Lisa Madigan sued a payday loan lead generator to enforce a 2012 cease and desist order issued by the state’s Department of Financial and Professional Regulation. The regulator and the AG assert that the state’s Payday Loan Reform Act (PLRA), which broadly defines “lender” to include “any person or entity . . . that . . . arranges a payday loan for a third party, or acts as an agent for a third party in making a payday loan, regardless of whether approval, acceptance, or ratification by the third party is necessary to create a legal obligation for the third party,” required the lead generator to obtain a license before operating in Illinois. The AG claims that the lead generator violated the state’s Consumer Fraud and Deceptive Business Practices Act by offering and arranging payday loans in knowing violation of the PLRA’s licensing and other requirements. The suit also alleges that the lead generator knowingly matched Illinois consumers with unlicensed members of the generator’s payday lender network. The AG is seeking a permanent injunction and a $50,000 civil penalty. On the same day, the AG also announced it filed suits against four online payday lenders for failing to obtain a state license, making payday loans with interest rates exceeding state usury caps, and otherwise violating state payday loan limitations. Those suits ask the court to permanently enjoin the lenders from operating in Illinois and declare all existing payday loan contracts entered into by those lenders null and void, with full restitution to borrowers.

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Minnesota Appeals Court Upholds State Regulation Of Online Payday Lender

On March 31, the Minnesota Court of Appeals held that the Minnesota state legislature may regulate the activities of online payday lenders that extend loans to individuals residing within the state’s borders, even if the lender’s operations are based in a different state. State of Minn. v. Integrity Advance, LLC, No. 62-CV-11-7168, 2014 WL 1272279 (Minn. Ct. App. Mar. 31, 2014). The state of Minnesota alleged that an online payday lender violated Minnesota law by charging high annual interest rates, automatically rolling-over loans for extended periods, and failing to obtain a state lending license. The lender argued that the dormant commerce clause of the U.S. Constitution, which prohibits states from discriminating against or unduly burdening interstate commerce, prevented the Minnesota legislature from regulating the lender because the lender received and accepted Minnesotans’ loan applications at its place of business in Delaware, where the loans were consummated. The court rejected the lender’s argument and held that the U.S. Constitution permits states to regulate commercial transactions that affect their citizens so long as the transactions are not “wholly extraterritorial” – that is, occurring entirely outside of the state’s borders. The court determined that the online lender’s loans were not “wholly extraterritorial” because the lender (i) accepted loan applications online from Minnesota residents that indicated the applicant resided and worked in Minnesota; (ii) contacted Minnesotans in their home state approximately 27,944 times for loan underwriting and other business purposes; and (iii) deposited loan funds directly into Minnesota borrowers’ bank accounts. The court also upheld the district court’s award of $7 million in civil and statutory damages against the lender, finding that the lower court did not abuse its discretion since the award amounted to only 21% of the statutorily-allowed amount.

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Nevada Federal Court Affirms FTC’s Authority Over Tribal Payday Lending Businesses

On March 19, the FTC reported that the U.S. District Court for the District of Nevada held that the FTC Act “grants the FTC authority to regulate arms of Indian tribes, their employees, and their contractors,” including tribe-affiliated businesses sued by the FTC over allegedly unfair and deceptive practices in the origination and collection of payday loans. FTC v. AMG Servs., Inc., No. 12-536, 2014 WL 910302 (D. Nev. Mar. 7, 2014). The court’s order affirmed a report and recommendation issued last July by a magistrate judge in which the magistrate concluded that under controlling Ninth Circuit precedent, the FTC has authority to regulate “Indian Tribes, Arms of Indian Tribes, employees of Arms of Indian Tribes and contractors of Arms of Indian Tribes with regard to” the payday lending activities at issue in the case. The district court rejected the defendant’s objections that the magistrate erred in (i) assigning the defendants the burden of establishing whether they fall within the FTC’s jurisdiction; (ii) determining that the FTC Act is a statute of general applicability; and (iii) failing to apply Indian law canons and Supreme Court opinions the defendants argued are controlling in determining whether a federal statute of general applicability applies to Indian tribes and arms of Indian tribes.

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Maine Seeks To Halt Unlicensed Consumer Lending

On March 16, Maine enacted legislation that makes it a violation of the Maine Unfair Trade Practices Act for a lender not organized and supervised under the laws of any state or the United States to solicit or make, either directly or through an agent, a loan to a Maine consumer unless licensed under state law. The law also establishes as an unfair or deceptive act or practice for entities other than supervised financial institutions to process a check, draft, other form of negotiable instrument or an electronic funds transfer from a consumer’s financial account in connection with a loan solicited from or made by an unlicensed lender who is not exempt from the licensure requirement. The statute similarly establishes as an unfair or deceptive act or practice for any person or lender to provide substantial assistance to a lender or processor when the person or lender or the person’s or lender’s authorized agent either knows or consciously avoids knowing that the lender or processor is unlicensed and not otherwise exempt from licensure or is engaging in an unfair or deceptive act or practice. The Maine UTPA provides a private right of action and allows the state attorney general to seek injunctive relief and civil penalties for violations of an injunction.

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