Yesterday, three trade organizations filed a complaint in Colorado federal court challenging H.B. 1229, Colorado’s effort to limit interest charges by out-of-state financial institutions, which is set to take effect on July 1, 2024. As discussed here, in June 2023, Colorado passed H.B. 1229, limiting certain charges on consumer loans and simultaneously opting Colorado out of §§ 521-523 of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). Sections 521-523 of DIDMCA empower state banks, insured state and federal savings associations and state credit unions to charge the interest allowed by the state where they are located, regardless of where the borrower is located and regardless of conflicting state law (i.e., “export” their home state’s interest-rate authority). However, § 525 of DIDMCA enables states to opt out of this rate authority with respect to loans made in the opt-out state.
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 businesses in the credit and alternative finance products industry.
Wisconsin Legislature Passes Earned Wage Access Bill
On February 20, the Wisconsin Senate passed House Bill (HB) 574 to regulate earned wage access (EWA) products and services. HB 574 creates a new chapter to the Wisconsin Statutes that requires EWA providers to be licensed by the Division of Banking and imposes substantive and disclosure rules. HB 574 expressly exempts EWA offered by licensees under the new law from the licensed loan company provisions in Wis. Stat. § 138.09 but does not clearly address whether EWA is covered by the Wisconsin Consumer Act. HB 574 will be sent to Governor Tony Evers for signature.
Washington State Passes Amendments to Bill Attacking Bank Model Lending and Banking-as-a-Service Programs
Proposed Legislation in Louisiana Aims to Regulate Commercial Financing Transactions
On March 1, Senate Bill (SB) 335 was introduced, which, if passed, would impose certain requirements on “commercial financing transactions.” Recently, multiple states have enacted disclosure regulations for commercial financing transactions (see discussions on California, Connecticut, Florida, Georgia, New York, Virginia, and Utah).
Massachusetts Introduces Earned Wage Access Product Legislation
On February 15, Massachusetts became the latest state to introduce legislation to regulate earned wage access (EWA) products and services. House Bill (HB) 4456 would create a new chapter to the Massachusetts Code explicitly stating that EWA services offered under the new chapter are not loans or other form of credit or debt, and voluntary tips or gratuities are not interest or finance charges. It further requires EWA providers to be licensed and provide mandatory disclosures to consumers. The bill is pending before the Joint Financial Services Committee.
Rhode Island and Minnesota Latest States with Bills Opting Out of Federal Banking Law Allowing Interest Rate Exportation
On February 12, ten Rhode Island senators introduced S 2275, a bill proposing to opt Rhode Island out of §§ 521-523 of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). On February 13, HF 3680 was introduced in Minnesota, proposing to opt-out of DIDMCA expressly as to non-credit card forms of credit. These legislative efforts to opt-out of DIDMCA, coupled with the influx in recent “true lender” legislation, seem to show a coordinated effort to restrict bank-model lending.
Bank and Loan Servicer Move to Dismiss Purported Class Action Asserting Violations of Georgia Usury Law and RICO
Recently, Lead Bank and its loan servicer Hyphen, LLC, an online lending platform operating Helix Financial, filed a motion to dismiss a purported class action alleging violations of the Georgia Installment Loan Act (GILA) and Georgia racketeering law arising out of a consumer installment or “payday loan.” Specifically, the plaintiff alleged that the loan agreement between herself and Lead Bank was “nothing more than a façade, and a temporary one at that” in an attempt to evade Georgia’s restrictions on payday lending.
Arizona, Kentucky, and Hawaii Become Latest States to Introduce Legislation to Regulate Earned Wage Access Products
Recently, Arizona, Kentucky, and Hawaii have jumped on the bandwagon to regulate earned wage access (EWA) products and services. Arizona’s proposed bill makes clear that EWA services are not considered to be loans or money transmissions, and voluntary tips or gratuities are not finance charges. It further requires EWA providers to be licensed, provide mandatory…
Troutman Pepper Publishes 2023 Consumer Financial Services Year in Review and A Look Ahead
We are pleased to share our annual review of regulatory and legal developments in the consumer financial services industry. With active federal and state legislatures, consumer financial services providers faced a challenging 2023. Courts across the country issued rulings that will have immediate and lasting impacts on the industry. Our team of more than 140 professionals has prepared this concise, yet thorough analysis of the most important issues and trends throughout our industry. We not only examined what happened in 2023, but also what to expect — and how to prepare — for the months ahead.
South Carolina Proposes Legislation to Impose Ability-to-Repay Analysis for Installment and Payday Loans
On January 9, a group of five bi-partisan South Carolina Senators introduced Bill 910, which would, among other things, require persons (non-bank lenders) providing “consumer installment loans” or “deferred presentment loans” to conduct ability to repay (ATR) analysis. Insured state and federally chartered banks and credit unions are exempt from the provisions of the proposed law, which is currently before the Committee on Labor, Commerce, and Industry for review.