Last week, the Administrator of the Colorado Consumer Credit Code (Administrator) announced a settlement with Avant, LLC (Avant) and Marlette Funding, LLC (Marlette). The suit alleged that the online lending programs operated by those two entities, where they partnered with a state chartered bank to originate closed end loans to consumers, violated the Colorado Consumer Credit Code.
In 2017, the Administrator sued Avant and Marlette alleging that they violated the Consumer Credit Code by charging interest and fees above what Colorado law allows. Although Avant and Marlette’s banking partners, WebBank and Cross River Bank, can export the interest rate caps of their home states, Colorado argued that non-bank entities Avant and Marlette were the true lenders because they held the economic interest and bore the economic risk.
On August 7, 2020, the Administrator released an Assurance of Discontinuance (AOD) entered into with Avant, Marlette, trustees of various securitization trusts involved in the lending programs, WebBank, and Cross River Bank, that had intervened in the state court action. The AOD created a five-point safe harbor framework that would protect these bank/fintech partnership lending programs and the loans originated through those lending programs from Colorado state regulatory enforcement. The AOD ensures the banks are treated as the true lender even after assignment of a loan to a non-bank entity. The agreed upon framework puts the economic interest and risk and responsibility for the lending program and its oversight into the hands of the bank and requires that every loan originated through these lending programs cannot exceed 36%.
More detailed information can be found at this link.
So, what does this mean? While this AOD is specific to loans originated to Colorado consumers, it provides a model that other state regulators can follow should they feel that the bank/fintech partnerships violate their state laws. It also provides much needed regulatory certainty for the future of the bank/fintech lending partnerships and the loans they originate (at least in Colorado). However, except for the parties involved in the suit, the AOD does not provide certainty or protection for loans previously originated. Outside of the knowledge that, moving forward, loans purchased from fintech sellers for consumers living in Colorado at the time of origination will fall under this safe harbor, loans already purchased could still be subject to challenge based on usury by consumers and their attorneys.
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This alert is intended for members of the Receivables Management Association International and is for informational purposes only and is in no way intended to provide legal advice. Members are encouraged to consult with an attorney of their choice for legal advice concerning this matter.