After its passage by the Washington state legislature, Substitute Senate Bill (SSB) 6025, the Washington “predatory loan prevention act”, was approved by Governor Jay Inslee on March 25, 2024, with an effective date of June 6, 2024.
Unlike the original version of this act proposed in Senate Bill 6025 and its identical companion bill, House Bill 1874, SSB 6025 as enacted does not include language expanding the definition of “loan” under the Washington Consumer Loan Act. The definition of “loan” remains “a sum of money lent at interest or for a fee or other charge and includes both open-end and closed-end loan transactions.” Rev. Code Wash. § 31.04.015 (14).
However, the originally proposed amendments to the Washington Consumer Loan Act discussed in our prior blog, adding “anti-evasion” and true lender recharacterization provisions, generally remain in place in the law as enacted. New subsections (2) and (3) of Rev. Code Wash. § 31.04.025 provide:
(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 chapter, 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.
Rev. Code Wash. § 31.04.027, which lists offenses that constitute a violation of the Consumer Loan Act by a “licensee, its officers, directors, employees, or independent contractors, or any other person subject to this chapter”, is amended by the addition of subsection (1)(o), which states it is a violation to
(o) Engage in any device, subterfuge, or pretense to evade the requirements of this chapter including, but not limited to, making, offering, or assisting a borrower to obtain a loan with a greater rate of interest, consideration, or charge than is permitted by this chapter.
The new predatory loan prevention act expands the Consumer Loan Act’s coverage to include any loan made to a “person physically located” in Washington, in addition to the existing coverage of any loan made to a “resident” of Washington, “by a licensee, or persons subject to this chapter”.
The amendments also establish that except for residential mortgage loans, a loan made by a person violating the licensing requirement of the Act is null, void, uncollectable, and unenforceable. Rev. Code Wash. § 31.04.035, as amended, provides, in pertinent part:
(1) No person may engage in any activity subject to this chapter without first obtaining and maintaining a license in accordance with this chapter.
(2) If a transaction violates subsection (1) of this section, any:
(a) Non third-party fees charged in connection with the origination of the residential mortgage loan must be refunded to the borrower, excluding interest charges; and
(b) Loan that is not a residential mortgage loan is null, void, uncollectable, and unenforceable.
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