(Division of Consumer Services)
Effective Date of Rule: Immediately.
Purpose: Check cashers and sellers will be subject to new consumer protections starting in January that will limit the fees they can collect and the number of loans they can made [make] to individual consumers, and will provide consumers with a payment plan option. As a result, some licensees have begun offering new products under the Consumer Loan Act that mirror small loans, but with unconscionable terms that fail to provide the protections provided under the check casher and seller's statutes. They are doing so by exploiting an inadvertent loophole in the Consumer Loan Act. 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.
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 four thousand 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. This rule amends existing WACs but will be superseded by the separately filed emergency rule effective January 1, 2010.
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
(a) Lend money at a rate that does not exceed twenty-five percent per annum as determined by the simple interest method of calculating interest owed;
(b) In connection with the making of a loan, charge the borrower a nonrefundable, prepaid, loan origination fee not to exceed four percent of the first twenty thousand dollars and two percent thereafter of the principal amount of the loan advanced to or for the direct benefit of the borrower, which fee may be included in the principal balance of the loan;
(c) In connection with the making of a loan secured by real estate, when the borrower actually obtains a loan, agree with the borrower to pay a fee to a mortgage broker that is not owned by the licensee or under common ownership with the licensee and that performed services in connection with the origination of the loan. A licensee may not receive compensation as a mortgage broker in connection with any loan made by the licensee;
(d) The powers listed in (a) and (b) of this subsection apply only to 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 and nonmortgage loans.
(2) Agree with the borrower for the payment of fees to third parties other than the licensee who provide goods or services to the licensee in connection with the preparation of the borrower's loan, including, but not limited to, credit reporting agencies, title companies, appraisers, structural and pest inspectors, and escrow companies, when such fees are actually paid by the licensee to a third party for such services or purposes and may include such fees in the amount of the loan. However, no charge may be collected unless a loan is made, except for reasonable fees actually and properly incurred in connection with the appraisal of property by a qualified, independent, professional, third-party appraiser selected by the borrower and approved by the lender or in the absence of borrower selection, selected by the lender.
(3) Charge and collect a penalty of not more than ten percent of any installment payment delinquent ten days or more.
(4) Collect from the debtor reasonable attorneys' fees, actual expenses, and costs incurred in connection with the collection of a delinquent debt, a repossession, or a foreclosure when a debt is referred for collection to an attorney who is not a salaried employee of the licensee.
(5)(a) Make open-end loans as provided in ((
the act)) 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.
(6) In accordance with Title 48 RCW, sell insurance covering real and personal property, covering the life or disability or both of the borrower, and covering the involuntary unemployment of the borrower.
[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.]