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Maine Enacts “True Lender” Legislation, Amends Consumer Credit Code To Include Anti-Evasion Provisions – Consumer Protection


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Maine Enacts “True Lender” Legislation, Amends Consumer Credit Code To Include Anti-Evasion Provisions


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Maine’s Governor, Janet Mills, recently signed S.P. 205/L.D. 522, which
amended the Consumer Credit Code to protect consumers from
predatory and fraudulent lending practices. In particular, the
amendments include an anti-evasion provision under which purported
bank agents or service providers are deemed “lenders” for
the purposes of statute. The amendment contains the following key
provisions:

  • Covered entities “may not engage in any device, subterfuge
    or pretense to evade the requirements of this Article, including,
    but not limited to.making, offering, assisting, or arranging a
    debtor to obtain a loan with a greater rate of interest,
    consideration or charge than is permitted by this Article through
    any method.”

  • Loans that violate these provisions are “void and
    uncollectible as to any principal, fee, interest or
    charge.”

  • A person qualifies as a lender if it:

    • holds, acquires or maintains, directly or indirectly, the
      predominant economic interest in the loan;

    • markets, brokers, arranges or facilitates the loan and holds
      the right, requirement or first right of refusal to purchase the
      loan or a receivable or interest in the loan; or

    • the totality of the circumstances indicate that the person is
      the lender and the transaction is structured to evade the
      requirements of this Article.

  • The circumstances that would weigh in favor of an entity being
    deemed the lender include, without limitation, when the entity:

    • indemnifies, insures or protects an exempt entity for any costs
      or risks related to the loan

    • predominately designs, controls or operates the loan program,
      or

    • purports to act as an agent or service provider for an exempt
      entity while acting directly as a lender in other states.

  • Lenders who violate these provisions may not furnish
    information concerning a debt associated with the violation to a
    consumer reporting agency, nor may it refer the associated debt to
    a debt collector.

The bill takes effect 90 days after legislative session
adjourns. The first special legislation session ended on Jul 19,
2021.

Putting It Into Practice: Maine’s amendment
targets bank partnership arrangements based on the “true
lender” legal theory that posits that nonbanks
“rent” bank charters from banks that carry little or no
economic or regulatory risk to, among other things, evade state
usury laws. Maine’s “anti-evasion” provisions are
significant because the language tracks the same provisions that
were recently adopted in Illinois, with similar bills
pending in New Mexico (HB 149 and SB 66). Other states have also
enacted alternatives to anti-evasion statutes that effectively
achieve the same goal, including, for example, provisions of
broadly drafted credit repair company laws, which require licensure
in many states and prohibit licensed companies from engaging in
brokering loans above the state’s maximum permitted interest
rate. As a result, while bank partnerships continue to flourish
nationwide, the model continues to face various state law
challenges.

In short, it appears likely that additional states will follow
suit and introduce legislation or engage in enforcement activity
geared towards limiting the ability of bank partnerships to evade
state interest rate caps. With that context in mind, banks and
their nonbank partners should, at a minimum, continue to be
vigilant in balancing contractual obligations to ensure that each
party in the bank partnership carries its fair share of regulatory
and economic risk to avoid the “rent-a-bank” label.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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Source: on 2021-08-10 15:30:00

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