On October 23, the Washington Department of Financial Institutions (DFI) proposed amendments to its Consumer Loan Act rules to implement the Predatory Loan Prevention Act (SSB 6025) (previously covered by InfoBytes here and here). The proposed amendments add a new section setting out the DFI’s interpretation of section 2 of SSB 6025. Under that section, a person that claims to act as an agent, service provider, or in another capacity for an exempt person is a lender that must hold a consumer loan company license if the loan exceeds the act’s permitted interest rate and either: (i) the person holds, acquires, or maintains the “predominant economic interest” in the loan; or (ii) the “totality of the circumstances” shows that the person is the lender and that the transaction is structured to evade the act.

A person holds, acquires, or maintains the predominant economic interest if the person: (i) puts its own money at risk; (ii) bears the benefits and risks of the loan; or (iii) advertises, arranges, or facilitates the loan and holds the right, requirement, or the right of first refusal to purchase the loan or other form of participation in the loan or purchases, retains, or otherwise obtains more than a 50 percent economic or financial interest in any loan including, but not limited to, a loan program or other loan pooling vehicle. The totality of circumstances factors include: (i) designing, controlling, or operating the loan program; (ii) acting as a lender in another jurisdiction while purporting to act as an agent, service provider, or in another capacity for another person that is exempt from the act; (iii) indemnifying, insuring, or protecting the exempt person for any costs or risks associated with or related to the loan; (iv) advertising, marketing, holding itself out as, or otherwise identifying itself as the lender or not clearly and conspicuously disclosing in all materials and disclosures that an exempt entity is the lender of the loans; or (v) providing money to another person that is exempt from the act for the purpose of funding the loan. The proposed amendments also state that making, offering, assisting, or arranging for a borrower to obtain a loan with a greater rate of interest, consideration, or charge than permitted is “engaging in device, subterfuge, or pretense to evade the requirements of the act.”

The proposal also restructures the licensing provision to require a license “from any location” to lend to, service student loans for, or advertise to Washington residents or persons “physically located in Washington,” and to service or modify residential mortgage loans on Washington real estate. It removes the refund provision for unlicensed activity and repeals the related fee-refund section. The DFI will hold a hearing on December 15, and written comments are due the same day.