Jenner & Block

Colorado Consumers Receive Additional Protections after Attorney General Settles Lawsuits

By: Alexander N. Ghantous

loan

In August of 2020, the Colorado Attorney General’s Office settled two lawsuits concerning Colorado’s right to enforce its consumer loan interest rate limits.[1] The lawsuits involved Avant of Colorado, LLC (“Avant”) and Marlette Funding, LLC (“Marlette”), both of which are not banks.[2] However, partnerships with banks located outside of Colorado were established by the companies: Avant with WebBank, and Marlette with Cross River Bank.[3]

According to the Colorado Attorney General’s website, federal law permits “certain out-of-state banks” to offer loans at higher interest rates in Colorado than what is generally permitted in the state.[4] The Colorado Attorney General alleged that the partnerships in these matters were established to illegally offer loans at higher interest rates than what was allowed in Colorado.[5] While the lawsuits did result in a settlement, there was no admission of fault, liability, or wrongdoing.[6]  

The settlement provides Colorado consumers with an extra layer of protection against predatory lending practices.[7] It ensures that “true bank loans” are being made by Cross River Bank, WebBank, and their non-bank company partners that include, but are not limited to, Marlette and Avant.[8] Included in those protections is a “Safe Harbor” provision, which was implemented to ensure compliance with the Colorado Uniform Consumer Credit Code.[9] The following criteria must be met to comply with the settlement’s “Safe Harbor” provision:

  • Oversight Criteria: To satisfy the “Safe Harbor” provision’s “Oversight Criteria,” 14 terms must be met.[10] For example, the first term mandates that any loan that is “offered and originated” online by either WebBank or Cross River Bank in conjunction with Avant, Marlette, or any other Fintech company partner is “subject to oversight by the respective [b]ank’s prudential regulators, including the FDIC and the [b]ank’s state banking regulators.”[11]
     
  • Disclosure and Funding Criteria: Three terms must be met to satisfy the “Safe Harbor” provision’s “Disclosure and Funding Criteria.”[12] For example, the first term requires that WebBank or Cross River Bank be identified as the lender on loan agreements.[13]
  • Licensing Criteria: Five terms must be met to satisfy the “Safe Harbor” provision’s “Licensing Criteria,” including, but not limited to, licensing requirements when “supervised loans” are offered.[14]
  • Consumer Terms Criteria: Two terms must be met to satisfy the “Safe Harbor” provision’s “Consumer Terms Criteria.”[15] For example, loans cannot have an interest rate that is higher than 36 percent.[16]
  • Structural Criteria: To satisfy the “Safe Harbor” provision’s “Structural Criteria,” there must be compliance with a minimum of one of the options that follow: “the Uncommitted Forward Flow Option, the Maximum Committed Forward Flow Option, the Maximum Overall Transfer Option, or an Alternative Structure Option,” all of which are described within the settlement.[17]

Under the settlement agreement, Web Bank, Cross River Bank, Avant, and Marlette are also joint and severally liable for: (1) a payment of $1,050,000 to the State of Colorado; and (2) a $500,000 contribution to the Colorado MoneyWi$er program.[18]  

The final, executed version of the settlement agreement is located here

 

[1] Colorado Attorney General’s Office, Colorado Attorney General’s Office Settles Lawsuit Against Lenders for Exceeding State Interest Rate Limits on Consumer Loans, (Aug. 18, 2020), https://coag.gov/press-releases/8-18-20/; Assurance of Discontinuance, https://coag.gov/app/uploads/2020/08/Avant-Marlette-Colorado-Fully-Executed-AOD.pdf

[2] Colorado Attorney General’s Office, Colorado Attorney General’s Office Settles Lawsuit Against Lenders for Exceeding State Interest Rate Limits on Consumer Loans, (Aug. 18, 2020), https://coag.gov/press-releases/8-18-20/; Assurance of Discontinuance, pg. 1, https://coag.gov/app/uploads/2020/08/Avant-Marlette-Colorado-Fully-Executed-AOD.pdf

[3] Colorado Attorney General’s Office, Colorado Attorney General’s Office Settles Lawsuit Against Lenders for Exceeding State Interest Rate Limits on Consumer Loans, (Aug. 18, 2020), https://coag.gov/press-releases/8-18-20/

[4] Id

[5] Id

[6] Assurance of Discontinuance, pg. 6, https://coag.gov/app/uploads/2020/08/Avant-Marlette-Colorado-Fully-Executed-AOD.pdf

[7] Colorado Attorney General’s Office, Colorado Attorney General’s Office Settles Lawsuit Against Lenders for Exceeding State Interest Rate Limits on Consumer Loans, (Aug. 18, 2020), https://coag.gov/press-releases/8-18-20/

[8] Id. 

[9] Assurance of Discontinuance, pgs. 6-14, https://coag.gov/app/uploads/2020/08/Avant-Marlette-Colorado-Fully-Executed-AOD.pdf

[10] Id. at 6-8

[11] Id at 6, 2-3

[12] Id. at 8

[13] Id. at 8, 2-3

[14] Id. at 8-9

[15] Id. at 9

[16] Colorado Attorney General’s Office, Colorado Attorney General’s Office Settles Lawsuit Against Lenders for Exceeding State Interest Rate Limits on Consumer Loans, (Aug. 18, 2020), https://coag.gov/press-releases/8-18-20/; Assurance of Discontinuance, pg. 9, https://coag.gov/app/uploads/2020/08/Avant-Marlette-Colorado-Fully-Executed-AOD.pdf

[17] Assurance of Discontinuance, pgs. 9-14, https://coag.gov/app/uploads/2020/08/Avant-Marlette-Colorado-Fully-Executed-AOD.pdf

[18] Colorado Attorney General’s Office, Colorado Attorney General’s Office Settles Lawsuit Against Lenders for Exceeding State Interest Rate Limits on Consumer Loans, (Aug. 18, 2020), https://coag.gov/press-releases/8-18-20/; Assurance of Discontinuance, pgs. 14-15, 2, https://coag.gov/app/uploads/2020/08/Avant-Marlette-Colorado-Fully-Executed-AOD.pdf

PEOPLE: Alexander N. Ghantous