Pennsylvania Court Holds Consumer Loan Law Applies to Out-of-State Companies

On July 10, in a 4-3 decision, the Pennsylvania Commonwealth Court upheld an interpretation of the Pennsylvania Consumer Discount Company Act (CDCA) that applied the law to companies with no physical presence in Pennsylvania. Cash Am. Net of Nev., LLC v. Dep’t of Banking, No. 8 M.D. 2009, 2009 WL 197499 (Pa. Commw. Ct. July 10, 2009). In July 2008, the Pennsylvania Department of Banking (Department) announced that, after more than 70 years of interpreting the requirements of the CDCA to apply only to Pennsylvania persons, all persons making non-mortgage consumer loans to Pennsylvania residents – whether or not those persons had any physical presence in Pennsylvania – would be required to comply with the requirements of the CDCA (reported in InfoBytes, Aug. 1, 2008). The CDCA limits the interest and fees a non-bank company can charge for non-mortgage loans of $25,000 or less. The petitioner, an online payday lender located in Nevada, sued the Department for a declaratory judgment, alleging that the new interpretation was both procedurally improper and substantively incorrect. The Commonwealth Court rejected both arguments. First, the court held that the new interpretation was merely a statement of policy, nonbinding on the courts or even the Department itself. Therefore, the policy did not need to be adopted through the procedures reserved for formal regulations. Second, the court held that the Department’s new interpretation of the reach of the CDCA “is the correct one,” even while acknowledging that “the Department formerly endorsed a contrary interpretation of that section.” Three judges joined in a dissenting opinion, which argued that the Department’s earlier interpretation of the limits of the CDCA was the correct one.