Washington State

House of Representatives

Office of Program Research

BILL

ANALYSIS

Business & Financial Services Committee

HB 1405

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

Brief Description: Regulating loans made under the consumer loan act.

Sponsors: Representatives Kirby, Kelley, Ladenburg, Darneille, Ryu, Stanford and Jinkins.

Brief Summary of Bill

  • Modifies the Consumer Loan Act exemption regarding loans made primarily for business, commercial, or agricultural purposes to except loans that are secured by a lien on the borrower's primary residence.

Hearing Date: 1/25/11, 1/27/11

Staff: Jon Hedegard (786-7127).

Background:

The Consumer Loan Act (CLA) authorizes the Department of Financial Institutions (DFI) to regulate consumer loan companies doing business in Washington. Consumer loan companies include mortgage lenders and consumer finance companies.

License Required.

No person may engage in the business of making secured or unsecured loans of money, credit, or things in action unless licensed by the DFI under the CLA or exempt from licensure. The CLA provides exemptions from licensing for:

An applicant for a license and any officers and principals of the applicant must undergo a background check. A licensee must maintain a surety bond or meet other specified financial requirements. The amount of the bond is based on the annual dollar amount of loans originated with a minimum amount of $30,000.

Powers of a CLA Licensee.

A CLA licensee may:

Prohibited Practices.

There are a variety of prohibited practices under the CLA to ensure fair, honest and open practices.

Administrative Enforcement.

The Director of the DFI (Director) may deny applications or renewals or suspend or revoke licenses for specified actions or failures to act by an applicant or licensee. The Director may impose fines for violations. The Director may issue an order directing the licensee, its employee or loan originator, or other person subject to the CLA to:

Penalties.

Violations of the CLA are violations of the Consumer Protection Act (CPA). The Office of the Attorney General may bring an action behalf of persons injured by a violation of the CPA. A private party may also bring an action to enforce the CPA. The CPA allows an injured party to receive treble damages, up to a maximum of $25,000

Certain violations are gross misdemeanors. A gross misdemeanor is punishable by up to one year in jail, or by a fine in an amount fixed by the court of not more than $5,000, or by both such confinement and fine.

In 2009 the statute concerning the exemptions was amended in two different bills. The difference in language could not be reconciled by the Code Reviser. The result is two different, overlapping statutes in law.

Summary of Bill:

The exemption regarding loans made primarily for business, commercial, or agricultural purposes is modified to except loans that are secured by a lien on the borrower's primary residence.

Several formatting and housekeeping changes are made.

Appropriation: None.

Fiscal Note: Available.

Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.