January 2024

More “True Lender” Laws Coming?


In our October 2023 and December 2023 editions of Licensing Link, we discussed state legislation in Connecticut and Florida that continued a trend of states enacting laws to characterize certain nonbanks as the “true lender” of loans made through a bank partnership. The first three weeks of 2024 show few signs that this trend will disappear any time soon, as the District of Columbia, Maryland, and Washington have introduced legislation to enact “true lender” laws.

Similar to the “true lender” laws that have been enacted in Connecticut, Illinois, Maine, Minnesota, and New Mexico, the proposed “true lender” legislation in the District of Columbia, Maryland, and Washington would characterize a person as the “lender” of a loan as a matter of law, if the person holds the predominant economic interest in a loan originated through a bank partnership, or otherwise is the lender under a “totality of the circumstances” analysis. The District of Columbia and Maryland laws also provide—similar to the “true lender” laws that have been enacted into law in other states—that a person is the “true lender” if the person markets, brokers, arranges, or facilitates a loan and holds the right, requirement, or right of first refusal to purchase the loan, or a receivable or interest in the loan. The District of Columbia and Maryland have previously asserted licensing and regulatory requirements under their lending and credit statutes against bank partnerships, and these claims have rested—at least in part—on “true lender” theories. The pending legislation would codify “true lender” tests into law and impose licensing and substantive compliance obligations on bank partnership platforms offering loans in the three jurisdictions.

The Washington DC legislation also would, if enacted, result in the District of Columbia “opting out” of the interest rate exportation authority provided by Section 521 of the federal Depository Institutions Deregulation and Monetary Control Act (“DIDMCA”), which permits state-chartered banks to make loans with interest rates permissible under the laws of the state where the loan is “made” and export those rates to other states, without regard to whether the interest charged on the loan exceeds an otherwise-applicable state usury law. DIDMCA permits states to enact legislation that “opts out” of DIDMCA’s interest rate exportation authority with respect to loans that are made in that state. (Although, as we have previously addressed, there is disagreement on the meaning of a state’s decision to opt out of DIDMCA’s interest rate exportation authority for state-chartered banks and whether a jurisdiction “opting out” of Section 521 has the effect of prohibiting out-of-state state-chartered banks from making loans to borrowers who reside in the opt-out jurisdiction pursuant to interest rate exportation authority under DIDMCA.) If the legislation is enacted, Washington DC would join Iowa, Puerto Rico, and—as of July 1, 2024, Colorado—as states that have “opted out” of DIDMCA’s interest rate exportation authority.

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