Washington now joins the list of states that have enacted or proposed legislation adopting so-called anti-evasion provisions, including legislation passed in Minnesota, discussed here, Connecticut, discussed here, Nebraska, discussed here, and proposed in Florida, discussed here. On December 5, HB 1874 was filed, which would amend the Washington Consumer Loan Act (CLA) to adopt both predominant economic interest and totality of the circumstance tests to determine the “true lender” of a loan under the CLA. It also takes aim at the use of voluntary tips, other gratuities or memberships and non-recourse loan programs.
Specifically, the definition of “loan” would be amended to include “money or credit provided to a borrower in exchange for the borrower’s agreement to a set of terms, including but not limited to, any finance charges, interest, or other charges, conditions, or considerations.” Additionally, “[a]ny transaction that satisfies the definition of a ‘loan’ is subject to this chapter without regard to the lender’s means of collection, whether the lender has legal recourse against the borrower in the event of nonpayment, and whether the transaction carries required charges or payments.”
The bill similarly targets “bank model” lending programs where a nonbank facilitates bank loans with rates in excess of those permitted by the CLA by codifying both a predominant economic interest test and a totality of the circumstances test. A person is a consumer loan lender if the totality of the circumstances show that the person is the lender and the transaction is “structured to evade” the requirements of the CLA or if such person holds, acquires, or maintains (directly or indirectly), the predominant economic interest in the loan. The bill would prohibit engaging in “any activity subject to” the CLA without a license as required by the CLA.
Finally, the amendment expands the CLA’s territorial scope by specifying that the law applies to “a person physically located in” Washington rather than requiring residency and contains an anti-evasion provision providing that a lender must not attempt to elude the CLA’s requirements by making, offering, assisting, or arranging for a loan with a greater rate than permitted by the CLA regardless of a physical location in Washington, 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.
A consumer finance loan made in violation of HB 1874 is void and uncollectible.