House Bill 1874 (H.B. 1874), denominated the “predatory loan prevention act”, was pre-filed for introduction in the Washington state legislature December 5, 2023, and referred to the House Committee on Consumer Protection and Business on January 8, 2024. H.B. 1874 is scheduled for public hearing on January 10, 2024 in the Washington House Committee on Consumer Protection & Business at 1:30 p.m. An identical companion bill, Senate Bill 6025 (S.B. 6025), was pre-filed for introduction in the Washington Senate on January 5, 2024, and referred to the Senate Committee on Business, Financial Services, Gaming & Trade on January 8, 2024.

If enacted as currently drafted, H.B. 1874 and S.B. 6025 (the “Predatory Loan Bills”) would amend Washington’s Consumer Loan Act (Revised Code of Washington, Chapter 31.04) by significantly expanding the definition of a “loan”, and adding broad “anti-evasion” provisions similar to those recently adopted (or proposed) in several other states.

The proposed amendments also may affect licensing mandates, licensee obligations, and the enforceability of certain loans if licensing requirements are not met.

As amended by the Predatory Loan Bills, the Consumer Loan Act would define a “loan” as “money or credit provided to a borrower in exchange for the borrower’s agreement to a certain set of terms including, but not limited to, any finance charges, interest, or other charges, conditions, or considerations. “Loan” includes open-end and closed-end credit, and any transaction conducted via any medium whatsoever including, but not limited to, paper, facsimile, internet, or telephone. Any transaction that satisfies the definition of a “loan” is subject to this chapter without regard to the lender’s means of collection, whether the lender has legal recourse against the borrower in the event of nonrepayment, and whether the transaction carries required charges or payments.”

The Consumer Loan Act would be further amended by the addition of “anti-evasion” provisions in the form of new subsections (2) and (3) of Rev. Code Wash. § 31.04.025:

“(2) A person may not engage in any device, subterfuge, or pretense to evade the requirements of this chapter including, but not limited to: Making loans disguised as personal property sale and leaseback transactions; disguising loan proceeds as a cash rebate for the pretextual installment sale of goods or services; or making, offering, assisting, or arranging a debtor to obtain a loan with a greater rate of interest, consideration, or charge than permitted by this chapter through any method, including mail, telephone, internet, or any electronic means regardless of whether the person has a physical location in the state.”

“(3) If a loan exceeds the rate permitted under this chapter, a person is a lender making a loan subject to the requirements of this chapter notwithstanding the fact that the person purports to act as an agent, service provider, or in another capacity for another person that is exempt from this act, if among other things:
(a) The person holds, acquires, or maintains, directly or indirectly, the predominant economic interest in the loan; or
(b) The totality of the circumstances indicate that the person is the lender, and the transaction is structured to evade the requirements of this chapter.”

The Predatory Loan Bills also would change the Consumer Loan Act’s coverage to any loan made to a “person physically located” in Washington, as opposed to the coverage of a loan made to a “resident” of Washington under current language. We question whether the effect of this amendment might be to exclude loans made to Washington residents when they are not physically located in Washington when the loan is made.

Ballard Spahr’s Consumer Financial Services team will continue to monitor developments relating to the Predatory Loan Bills, and will be prepared to advise clients on potential effects and exceptions to the coverage of the Consumer Loan Act if one of the Predatory Loan Bills is enacted.