On June 29, 2023, Connecticut’s Governor signed into law Substitute Senate Bill No. 1033 which makes significant changes to the state’s Small Loan Act. The new law takes effect on October 1, 2023.
The primary changes are as follows:
New APR calculation (Section 1, subdivision (2), Revising 36a-555(2)). Under the current law, the APR is calculated under the provisions of the federal Truth-in-Lending Act and associated regulations. Under the new law, the APR is to be calculated under the provisions of the federal Military Lending Act and associated regulations. The new law also specifies certain charges that shall be deemed to be a finance charge for purposes of calculating the APR:
- A charge set forth in 32 C.F.R. Sec. 232.4(c)(1);
- A charge for any ancillary product, membership or service sold in connection with or concurrent with a small loan;
- Any amount offered or agreed to by a borrower in furtherance of obtaining credit or as compensation for the use of money; and
- Any fee, voluntarily or otherwise, charged, agreed to or paid by a borrower in connection with or concurrent with a small loan.
Reorganized and expanded small loan definition (Section 1, subdivision (11), Revising 36a-555(11)). The new law reorganizes the definition of small loan, and more importantly, expands the definition to increase is coverage from loans in an amount or value of fifteen thousand dollars or less to loans in an amount or value of fifty thousand dollars or less (where the APR is greater than 12%).
New licensing requirement for persons acting as an agent, service provider or in another capacity for persons who are exempt from licensure (e.g., a bank) if:
- Such person holds, acquires or maintains an economic interest in a small loan;
- Such person markets, brokers, arranges or facilitates the loan and holds the right, requirement or right of first refusal to purchase the small loans, receivables or interests in the small loans; or
- The totality of the circumstances indicate that such person is the lender and the transaction is structured to evade the requirements of the Small Loan Act.
Circumstances weighing in favor of deeming a person a lender who must be licensed as a small loan lender include but are not limited to the person (A) indemnifying, insuring or protecting an exempt person for any costs or risks related to a small loan; (B) predominantly designing, controlling or operating a small loan program; (C) purporting to act as an agent, service provider or in another capacity for an exempt person in this state while acting as a lender in another state. (Section 2, subdivision (d)(Adding 36a-556(d))
New limitation on existing servicing-for-an-exempt-person exemption from licensure to additionally require that the person servicing does not engage in activities described in new 36a-556(d) (Section 3, subsection(a)(3), Revising 36a-557(a)(3)).
New limitation on the existing exemption for bank and certain bank subsidiary loans in existing 36a-557(c) as inapplicable to loans described by new 36a-556(d). (Section 3, subsection(c)).
Conforming changes to implement the change from fifteen to fifty thousand dollars. (See e.g., Section 4, subsection (d)(1), Revising 36a-558; Section 5, subdivision (1), Revising 36a-560(1)).