(Division of Consumer Services)
Effective Date of Rule: January 1, 2010.
Purpose: The general welfare of the public who use unsecured consumer loans must be protected from unreasonable fees. Some licensees formerly operating under chapter 31.45 RCW (the payday lending law) have begun offering products under the Consumer Loan Act that mirror small loans, but with unconscionable terms that fail to provide the protections of the payday lending law. Under the payday lending law, new consumer protections begin in January that limit the fees on payday loans. They also provide consumers with a free installment plan option. In amending the payday lending law, the legislature specifically sought to limit fees and provide a mechanism for borrowers with multiple loans to pay off the loans over a period of time without having to reloan, continuing their cycle of debt. This emergency rule would serve as a stopgap to allow the department of financial institutions (DFI) to protect the welfare of the public while seeking a more permanent solution through rule making or the legislature.
Citation of Existing Rules Affected by this Order: Amending WAC 208-620-515.
Statutory Authority for Adoption: RCW 31.04.165, 43.320.040.
Under RCW 34.05.350 the agency for good cause finds that immediate adoption, amendment, or repeal of a rule is necessary for the preservation of the public health, safety, or general welfare, and that observing the time requirements of notice and opportunity to comment upon adoption of a permanent rule would be contrary to the public interest.
Reasons for this Finding: Due to changes in chapter 31.45 RCW and the resulting rules implementing the law, some licensees have obtained a license under chapter 31.04 RCW, the Consumer Loan Act, in order to use a specific provision within that act, RCW 31.04.115(3), to charge exorbitant fees to borrowers. In one example, a consumer loan of $600 generated a participation fee of $1,980, payable over twelve months, in addition to the statutorily allowed interest rate. This is equivalent to an APR of over 4,000 percent. Additionally, the participation fee is charged monthly if the small loan is paid off but the line of credit account is kept open. If this rule were amended by the notice and negotiated rule-making process, great harm could occur to the borrowers who need the consumer loan now. Consumer demand is presently high due to the economic downturn causing both increased unemployment and the tightening of normal credit sources, which increases the necessity of immediate action. DFI intends to begin a notice and negotiated rule making within one hundred twenty days from the filing of this emergency rule making but in the interim needs to be able to protect the welfare of the consumers and prevent lenders from circumventing the will of the legislature. DFI may also seek a statutory remedy to this situation.
Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 0, Repealed 0.
Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.
Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 1, Repealed 0.
Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.
Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.
Date Adopted: December 21, 2009.
Deborah Bortner, Director
Division of Consumer Services
AMENDATORY SECTION(Amending WSR 09-24-090, filed 12/1/09, effective 1/1/10)
WAC 208-620-515 What authority do I have as a licensee? As a licensee you may:
(1) Lend money with a note rate that does not exceed twenty-five percent per annum as determined by the simple interest method of calculating interest owed. This applies only to nonmortgage loans, junior lien mortgage loans, and to lenders that are not "creditors" under the Depository Institutions Deregulatory and Monetary Control Act when making first lien mortgage loans. The requirement for the simple interest method of calculating interest does not apply to reverse mortgages.
(2)(a) Make open-end loans as provided in RCW 31.04.115.
(b) The annual fee allowed in RCW 31.04.115(3) may not exceed fifty dollars.
(c) The fee must be charged in advance and must be charged as a lump sum. It must not be charged monthly and must not be financed.
(d) You are allowed to charge a fee to terminate or close the line of credit account only if you have not charged an annual fee. The fee to terminate or close the account must not exceed fifty dollars.
(3) In accordance with Title 48 RCW, sell insurance covering real and personal property, covering the life or disability or both of the borrower, covering the involuntary unemployment of the borrower, or other insurance products approved by the Washington state office of the insurance commissioner.
[Statutory Authority: RCW 43.320.040, 31.04.165, 2009 c 120, and 2009 c 149. 09-24-090, § 208-620-515, filed 12/1/09, effective 1/1/10. Statutory Authority: RCW 43.320.040. 08-15-125, § 208-620-515, filed 7/22/08, effective 8/22/08. Statutory Authority: RCW 31.04.165, 31.04.015, 31.04.045, 31.04.075, 31.04.085, 31.04.093, 31.04.102, 31.04.115, 31.04.145, 31.04.155, and 31.04.175. 06-04-053, § 208-620-515, filed 1/27/06, effective 2/27/06.]