On September 24, the Connecticut Department of Banking entered a consent order with a lender that offered advances based on anticipated personal-injury recoveries. The Department alleged that the company’s products constituted “small loans” under the Connecticut Small Loan and Related Activities Act and that the company had extended and collected such loans without first obtaining a state license.
According to the Department, the company provided monetary advances of $15,000 or less to Connecticut consumers to be repaid from future lawsuit proceeds. The repayment amounts increased over time, resulting in effective interest rates above the state’s 12% usury cap. The Department alleged that these transactions were small loans under state law and required a license. It further alleged that the company filed collection actions against Connecticut borrowers and refused to furnish requested records and information during the investigation.
Under the consent order, the company agreed to cease unlicensed activity, withdraw its pending appeal, and establish a $50,000 restitution fund to reimburse borrowers who paid more than what would have accrued at the permitted 12% rate. The fund will remain open for six months, and any remaining balance will be paid to the Department as a civil penalty.
Putting It Into Practice: With federal consumer protection enforcement in retreat, state regulators have continued to fill the void with increasingly aggressive oversight and enforcement (previously discussed here and here). Entities offering nontraditional consumer financial products across multiple states should continue to monitor how regulators classify and license such alternative lending arrangements.