Maine enacts predominant economic interest standard

State Issues State Legislation Predatory Lending Consumer Finance

On June 21, the Maine governor signed S.P. 205/L.D. 522, which enacts and amends provisions prohibiting certain actions in the making of consumer loans to protect consumers from predatory, fraudulent lending practices. Among other things, the act prohibits covered entities from “engag[ing] in any device, subterfuge or pretense to evade the requirements of this Article, including, but not limited to, making a loan disguised as a personal property sale and leaseback transaction, 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 is permitted by this Article through any method.” Loans that violate these provisions are “void and uncollectible as to any principal, fee, interest or charge.” The act also specifies that a person qualifies as a lender subject to the act’s requirements if, among other things, (i) “[t]he person holds, acquires or maintains, directly or indirectly, the predominant economic interest in the loan”; (ii) “[t]he person markets, brokers, arranges or facilitates the loan and holds the right, requirement or first right of refusal to purchase the loan or a receivable or interest in the loan”; or (iii) “[t]he totality of the circumstances indicate that the person is the lender and the transaction is structured to evade the requirements of this Article.” Additionally, the act provides that a lender who violates the act’s provisions may not furnish information concerning a debt associated with the violation to a consumer reporting agency, nor may it refer the associated debt to a debt collector. The bill takes effect 90 days after legislative session adjourns.