On September 23, Minnesota AG Keith Ellison announced a court-approved settlement resolving its federal lawsuit against officials of an online lender over loans to Minnesota consumers with interest rates allegedly approaching 700%.The AG alleged that the lending practices violated the Consumer Financial Protection Act and the state’s Anti-Usury Law, Regulated Loan Act, Short-Term Loan Statute, Prevention of Consumer Fraud Act, Uniform Deceptive Trade Practices Act, and its False Statement in Advertising Act.
The AG filed the lawsuit in March against two officials of the lender in their official capacities. The lender, which is wholly owned by a federally recognized Native American tribe, disputed that Minnesota law applied to its lending activities. According to the AG’s complaint, the lender allegedly:
- Charged interest rates exceeding Minnesota limits. The AG alleged that the lender offered loans to Minnesota consumers with annual percentage rates approaching 700%, substantially exceeding the rates permitted under Minnesota law.
- Made high-cost, small-dollar loans to Minnesota consumers. The AG alleged that the lender offered Minnesota borrowers loans generally ranging from $350 to $1,500 while failing to comply with applicable state lending requirements.
- Claimed Minnesota lending laws did not apply. The AG alleged that the lender maintained that its tribal ownership exempted its lending activities from Minnesota consumer-lending laws, a position disputed by the AG.
The settlement requires the lender to stop marketing, advertising, and making loans to certain Minnesota consumers unless its loans comply with specified Minnesota lending laws. The lender also may not charge or collect additional interest on existing covered Minnesota loans or sell, assign, or transfer those loans or related receivables. The settlement does not impose civil penalties or monetary damages and expressly provides that it does not constitute an admission of a violation or wrongdoing or waive the lender’s sovereign immunity.
Putting It Into Practice: The settlement comes amid heightened state enforcement activity targeting consumer lending practices (previously discussed here and here). State regulators continue to scrutinize whether lenders are complying with state interest-rate and licensing requirements. Online lenders should continue to monitor state enforcement activity and review their lending practices for compliance with applicable state requirements.
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