On March 8, Washington State’s legislature passed a significant amendment (SB 6025) to the Consumer Loan Act (CLA) targeting bank model lending. SB 6025 is an updated version of a prior bill, discussed here. The act awaits Governor Jay Inslee’s signature.

Like the prior bill, SB 6025 continues to attack bank model lending and banking-as-a-service (BaaS) programs, as it:

• Targets “bank model” lending programs by codifying both a predominant economic interest test and a totality of the circumstances test.
  • A person is a consumer loan lender if the totality of the circumstances show that the person is the lender and the transaction is “structured to evade” the requirements of the CLA or if such person holds, acquires, or maintains (directly or indirectly), the predominant economic interest in the loan. The bill would prohibit engaging in “any activity subject to” the CLA without a license as required by the CLA.
• Expands the CLA’s territorial scope by specifying that the law applies to “a person physically located in” Washington rather than requiring residency and contains an anti-evasion provision providing that a lender must not attempt to elude the CLA’s requirements by making, offering, assisting, or arranging for a loan with a greater rate than permitted by the CLA regardless of a physical location in Washington, making loans disguised as a personal property sale and leaseback transactions, or disguising loan proceeds as a cash rebate for an installment sale of goods or services.
• Provides that a consumer finance loan made in violation of the bill is void and uncollectible.

The amended bill also includes the following new provisions:

• The requirements of SB 6025 do not apply to a person that extends money or credit to another on a non-recourse basis in exchange for a contingent right to receive an amount of the potential proceeds of any award, judgment, settlement, or verdict. However, this exemption does not apply to any person that requires repayment in the event the person does not prevail in their civil proceeding.
• The bill will only apply prospectively.

Notably, however, the final version of the bill no longer amends the definition of “loan” to include “money or credit provided to a borrower in exchange for the borrower’s agreement to a set of terms, including but not limited to, any finance charges, interest, or other charges, conditions, or considerations.”