The Attorney General for the District of Columbia, Karl A. Racine, (the “AG”) has filed a complaint against Elevate Credit, Inc. (“Elevate”) in the Superior Court of the District of Columbia alleging violations of the D.C. Consumer Protection Procedures Act including a “true lender” attack related to Elevate’s “Rise” and “Elastic” products offered through bank-model lending programs.

Specifically, the AG asserts that the origination of the Elastic loans should be disregarded because “Elevate has the predominant economic interest in the loans it provides to District consumers via” originating state banks thereby subjecting them to D.C. usury laws despite the fact that state interest rate limits on state bank loans are preempted by Section 27 of the Federal Deposit Insurance Act. “By actively encouraging and participating in making loans at illegally high interest rates, Elevate unlawfully burdened over 2,500 financially vulnerable District residents with millions of dollars of debt,” said the AG in a statement. “We’re suing to protect DC residents from being on the hook for these illegal loans and to ensure that Elevate permanently ceases its business activities in the District.”

The complaint also alleges that Elevate engaged in unfair and unconscionable practices by “inducing consumers with false and deceptive statements to enter into predatory, high-cost loans and failing to disclose (or adequately disclose) to consumers the true costs and interest rates associated with its loans.” In particular, the AG takes issue with Elevate’s (1) marketing practices that portrayed its loans as less expensive than alternatives such as payday loans, overdraft protection or fees incurred from delinquent bills; and (2) disclosure of the costs associated with its Elastic open-end product which assesses a “carried balance fee” in lieu of a periodic rate.

Along with a permanent injunction and civil penalties, the AG seeks restitution for affected consumers including a finding that the loans are void and unenforceable and compensation for interest paid.

The AG’s “predominant economic interest” theory follows similar reasoning employed by some federal and state courts, most recently in Colorado, to attack bank programs. Join us on July 20th for a discussion of the implications of these “true lender” holdings on the debt buying, marketplace lending and bank-model lending programs as well as the impact of the OCC’s promulgation of a final rule intended to resolve the legal uncertainty created by the Second Circuit’s decision in Madden v. Midland Funding.