On May 18, Minnesota Governor Tim Walz signed into law the Commerce Omnibus Bill, which, among other things, amends Minnesota Statute §§ 47.60 and 47.601 to cap the annual percentage rates (APR) on consumer small loans and consumer short-term loans at a 50% all-in APR, and expressly provides for predominant economic interest and totality of the circumstance tests for true lender purposes.

The bill defines “consumer short-term loan” as a loan to a borrower which has a principal amount, or an advance on a credit limit, of $1,300 or less and requires a minimum payment of more than 25% of the principal balance or credit advance within 60 days. The bill defines “consumer small loan” as a consumer-purpose unsecured loan equal to or less than $350 that must be repaid in a single installment.

Following the amendment, a lender must engage in an ability to pay analysis if the all-in APR on a consumer small loan or consumer short-term loan exceeds 36%. The ability to pay analysis “must be based on the calculation of the borrower’s debt-to-income ratio for the loan period” that is supported by documents evidencing the borrower’s net income, major financial obligations, and basic living expenses.

The amendment also contains an anti-evasion provision providing that a lender must not attempt to elude these requirements by making, offering, assisting, or arranging for a loan with a greater rate than permitted by the amendment regardless of a physical location in Minnesota, making loans disguised as a personal property sale and leaseback transactions, or disguising loan proceeds as a cash rebate for an installment sale of goods or services.

The amendment also codifies a predominant economic interest test. That test provides that a person is a consumer small loan or consumer short-term lender if: (1) the person directly or indirectly holds, acquires, or maintains the predominant economic interest, risk, or reward in the loan or lending business, or (2) both markets/solicits, brokers/arranges, or facilitates the loan and holds the first right of refusal to acquire loans, receivables, or other interest in the loan.

A person is also a consumer small loan or consumer short-term lender if the totality of the circumstances show that the person is a lender and the transaction is “structured to evade” the amended requirements. The amendment sets forth example circumstances indicating when a person is the lender. Those circumstances include when a person:

  • indemnifies or protects a person not subject to section 47.60 from any risks of the loan;
  • predominantly designs, controls, or operates the lending activity;
  • holds the trademark or intellectual property rights in the brand, underwriting system, or other core aspects of a lending business; or
  • purports to act as an agent or service provider for a person not subject to 47.60 while acting directly as a lender in other states.

The amendment is effective January 1, 2024 and applies to loans originated on or after that date.

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Photo of Chris Capurso Chris Capurso

Chris focuses his practice on consumer financial services compliance, guiding clients through the many federal and state laws and regulations that impact consumer credit programs.

Photo of Jason Cover Jason Cover

Jason’s in-depth experience advising on consumer lending matters both as in-house counsel and outside advisor provides extensive industry knowledge for his financial services clients.

Photo of Mark Furletti Mark Furletti

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial services across numerous industries.

Photo of Taylor Gess Taylor Gess

Taylor focuses her practice on providing regulatory advice on matters related to federal and state consumer protection, consumer finance, and payments laws, including those that apply to payment cards, lines of credit, installment loans, electronic payments, online banking, buy-now-pay-later transactions, retail installment contracts…

Taylor focuses her practice on providing regulatory advice on matters related to federal and state consumer protection, consumer finance, and payments laws, including those that apply to payment cards, lines of credit, installment loans, electronic payments, online banking, buy-now-pay-later transactions, retail installment contracts, rental-purchase transactions, and small business loans.

Photo of Caleb Rosenberg Caleb Rosenberg

Caleb is counsel in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small…

Caleb is counsel in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small businesses in the credit and alternative finance products industry.

Photo of Jeremy Rosenblum Jeremy Rosenblum

Jeremy focuses his practice on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products…

Jeremy focuses his practice on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products designed to serve the needs of unbanked and under-banked consumers), bank overdraft practices and disclosures, geographic expansion initiatives, and compliance with federal and state consumer protection laws, including statutes prohibiting unfair, deceptive and abusive acts and practices (UDAAP); usury laws; the Truth in Lending Act (TILA); the Electronic Funds Transfer Act; E-SIGN; the Equal Credit Opportunity Act; and the Fair Credit Reporting Act (FCRA).