Cadwalader attorneys reviewed a case concerning marketplace lending in which certain securitization trusts that had acquired the defendants' loans were charged for violations of the Colorado Uniform Consumer Credit Code ("UCCC").

In 2017, the Administrator of the UCCC ("Administrator") sued Avant of Colorado LLC and Marlette Funding LLC ("Defendants") in separate actions. The Administrator alleged that the Defendants made loans to Colorado consumers and charged interest rates above the maximum rate allowed by the UCCC. The Administrator asserted that, although the loans were nominally by out-of-state FDIC-insured state-chartered banks (for Avant, Utah's WebBank, and, for Marlette, New Jersey's Cross River Bank), the "true lenders" were Avant and Marlette. Although out-of-state banks are permitted to "export" interest rates and certain fees when making loans to Colorado consumers, according to the Administrator, exportation rights do not apply to entities such as Avant and Marlette because neither is a bank. The Administrator, therefore, contends that the Avant- and Marlette-related loans made to Colorado residents must comply with the UCCC's restrictions on finance charges and fees.

As explained more fully in the memorandum, the Administrator recently filed amended Complaints naming thirty-six securitization trusts (collectively, the "Trusts") that the Administrator contends had purchased Avant or Marlette loans and for which either Wilmington Trust, N.A., or Wilmington Savings Fund Society, FSB (a national bank and a federal savings bank, respectively), serves as trustee. The Administrator asserts that the Trusts violated the UCCC by receiving finance charges and late fees not authorized by the UCCC. The Administrator requests that the Court order the Trusts to disgorge any finance charges or fees received beyond those permitted by the UCCC, and:

"for every consumer credit transaction as may be determined at trial or otherwise in which a consumer was charged an excess charge, [to] order[] [Avant or Marlette and the respective] Trusts to pay to each such consumer a civil penalty determined by the Court not in excess of the greater of either the amount of the finance charge or ten times the amount of the excess charge."

This memorandum was authored by Scott Cammarn, Mark Chorazak, Jonathan Watkins, Chris Gavin, Joseph Beach and Peter Morreale.

Commentary / Scott Cammarn

By threatening the buyers of marketplace loans, the Administrator is escalating the pressure on Avant and Marlette - and, indirectly, the pressure on other marketplace lenders that extend credit to Colorado consumers.

The filing of these amended complaints underscores that the fight over the "bank origination model" used by marketplace lenders is far from over. Secondary market purchasers and warehouse lenders should continue to approach with caution marketplace loans involving consumers residing in states (such as Colorado) where the bank origination model is under attack, especially if the rates and fees being charged to those consumers exceed local restrictions.

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