“Rent-a-Bank” Lender Schemes Violate State Consumer Credit Laws
By: Jennifer Seidman – Of Counsel at Burg Simpson Eldredge Hersh & Jardine
“Rent-a-Bank” lender schemes violate State consumer credit laws, and lender liability law says lenders must treat their borrowers fairly. When they do not, lenders may be legally liable to borrowers. Colorado’s Attorney General has sued several non-bank lenders, including Avant of Colorado, LLC (aka Avant’s or Avant, Inc.) and Marlette Funding, LLC (aka Best Egg), for making loans subject to interest rates, delinquency charges and other obligations that violate Colorado law. These non-bank lenders attempted to evade Colorado consumer protections by associating in various ways with a bank. Other lenders may also have made loans with terms that violate Colorado law.
In Meade v. Funding, Case Nos. 17CV30376 and 17CV30377 (Colo. Dist. Ct. August 14, 2018), a Colorado district court held that if a non-bank lender’s involvement with a bank is simply a “sham” or a “rent-a-bank scheme,” the non-bank lender must comply with Colorado laws that do not apply to banks. Multiple courts in other states have held that non-bank lenders may not hide behind banks for purposes of circumventing state laws intended to protect consumers from unfair terms in loans issued by these non-bank lenders.
When a consumer of a loan subject to Colorado law has paid an excess charge, he or she has a right to a refund. In most instances, actions to recover the amount of excess charges relating to certain consumer credit transactions must be brought within one year after the due date of the last scheduled payment. However, there may be exceptions to this general rule, and an experienced lawyer can help assess whether an exception may apply in a particular case.
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