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On March 25, Washington State became the latest in a growing list of jurisdictions to introduce a “true lender” law with the passing of bill SB 6025. The legislation, similar to laws in other states would characterize a person as the “lender” of a loan if the person makes a loan in excess of the state’s rate cap and if the person:

  • holds the predominant economic interest in a loan originated through a bank partnership; or
  • the totality of the circumstances indicate that the person is the lender.

The legislation codifies the true lender test into law, and make bank partnerships that lend to consumers in Washington subject to licensing and compliance obligations.

Moreover, the statute has an anti-evasion provision that prevents entities from engaging in acts that evade the requirements of the law by, among other things:

  • offering loans under the guise of personal property sale or leaseback deals;
  • disguising loan proceeds as a cash rebate for the pretextual installment sale of goods or services; or,
  • making, offering, assisting, or arranging a debtor to obtain a loan with a rate of interest in excess of the state’s rate cap. 
  • Loans made in violation of the statute’s requirements would be considered null, void, and uncollectable.

Putting it into Practice: True lender laws continue to show no sign of slowing down, as various states have recently proposed similar legislation. Moreover, the broad reach of Washington’s law impacts not only lenders and their fintech partners, but also entities that assist in connecting consumers to lenders, such as lead generators. Under the law, any entity that “assists” a consumer in obtaining a loan could be subject to licensure obligations and possible penalties if they are found violating the law. Companies engaged in bank partnership arrangements should continue to pay close attention to any related legislative developments in the jurisdictions in which they operate.