The Consumer Loan Act. The Consumer Loan Act (CLA) regulates consumer loans in Washington by providing various requirements for lenders and protections for borrowers. The CLA authorizes the Department of Financial Institutions to regulate consumer loan companies doing business in Washington. The CLA is applicable to each loan made to a resident of Washington by a licensee.
The Definition of a Loan. Under the CLA, the term loan is currently defined as a sum of money lent at interest or for a fee or other charges and includes both open-end and closed-end loan transactions.
Applicability of the Consumer Loan Act. The CLA is applicable to each loan made to a resident of Washington by a licensee and subject to its authority and restrictions. There are a number of entities exempt from the CLA, some of which include:
Violations of the Consumer Loan Act. The CLA has a number of violations listed in statute. Some of which include:
Engaging in any device, subterfuge, or pretense to evade the requirements of the CLA in order to circumvent CLA requirements is not explicitly referenced as a violation of the CLA.
Expands the Definition of Loans. The term loan is expanded to include money or credit to a borrower in exchange for a borrower to agree to a set of terms including, but not limited to:
The term continues to include open-end and closed-end credit. The term also includes any transaction conducted via any medium. Any transaction under the term loan is subject to the CLA.
Anti-Evasion Provisions in the Consumer Loan Act. Individuals attempting to evade the requirements of the CLA through any device, subterfuge, or pretense to make, offer, or assist a borrower obtain a loan with a greater rate of interest, consideration, or charge is in violation of the CLA.
PRO: The definition of a loan needs to keep up with new lending products that are being created by fintech companies. There are entities using various schemes to evade regulation under Washington's consumer loan laws. Utah has no usury limits, and these fintech companies are using these banks to offer high interest loans. This act will protect our most vulnerable population. The interest rates on some of these unregulated products can ultimately add up to well over 100 percent. These entities need to be regulated and play by the same rules that other entities do. Earned Wage Access (EWA) companies share fundamental similarities with payday products. This bill does not prevent EWA's from existing in Washington- it just makes them subject to regulation.
CON: We are an earned wage access company. We do payday advances for low fees. These aren't loans because they have a legal right to this money. Earned Wage Access is a high quality alternative to a loan. 30 percent of consumers in Washington State have difficulty accessing the banking system. In Illinois, many people's financial well-being got worse after the bill that SB 6025 is modeled after passed. This definition of loan will reduce access to credit, rather than promote it.
OTHER: This can help manage employee finances. Placing restrictions on EWA companies is problematic. Legislation should legitimize this benefit and be focused in on how EWA's work. EWA products are not a loan- they make earned but not paid wages available to our customers. Earned Wage Access is not a loan. This would adversely impact the hundreds of Washington employers that offer EWA to their employees. Some states are passing EWA specific legislation. We are in support of regulation, but we want one that is in line with how EWA's work. More than 250,000 employees in Washington have used EWA products. EWA's don't charge interest or late fees. The risk is only on the employer not making payroll. There are ways we can work together, but we have concerns about EWA products being included in the definition of loan. EWAs prevent consumers from taking out high interest loans.
PRO: Senator Derek Stanford, Prime Sponsor; Lauren Saunders; Sam Leonard, Northwest Consumer Law Center; Julia Kellison.