Maine amends Consumer Credit Code to target loans made using bank partnership model

Ballard Spahr LLP

Ballard Spahr LLP

Maine has amended its Consumer Credit Code to target loans made using a bank partnership model.  The amendments include an anti-evasion provision under which a purported agent or service provider is deemed a “lender” subject to Title 9-A, Article 2 of Maine Revised Statutes.  Article 2 contains a licensing requirement and rate and fee limits for consumer loans.

SP 205/LD 522 added a new Part 7 to  Article 2.  Part 7 contains the following key provisions:

  • Any entity covered by Article 2 (i.e. entities making or servicing consumer loans) “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.  A loan made in violation of this Part is void and uncollectible as to any principal, fee, interest or charge.”
  • A purported agent or service provider for another entity exempt from Article 2 will be deemed a lender subject to Article 2 if it (a) holds, acquires or maintains, directly or indirectly, the predominant economic interest in the loan, (b) 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 (c) the totality of the circumstances indicate that the entity is the lender and the transaction is structured to evade the requirement of Article 2.  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.
  • If a creditor violates the anti-evasion provisions, the debtor is not obligated to pay the loan and can recover any payments made on the loan from the entity violating the provisions or an assignee of that entity’s rights who undertakes direct collection of payments or enforcement of rights arising from the debt.

The new Maine anti-evasion provision regarding when a purported agent or service provider will be deemed a lender subject to Article 2 closely tracks the anti-evasion provision in the Illinois Predatory Loan Prevention Act which became effective in March 2021.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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