Recent Developments in Legal Cases that Could Impact Small-dollar Financial Services

This week, there have been several important legal developments in the small-dollar financial services industry: the Georgia Supreme Court ruled that cash advances are not always loans; the Consumer Financial Protection Bureau (CFPB) reached a settlement with a small-dollar lender; and a trade association launched another lawsuit against the Office of the Comptroller of the Currency (OCC).

Additional information on these developments can be found below:

• On October 22, the Georgia Supreme Court ruled in favor of Cherokee Funding, LLC. The court found that the company’s cash advances to people expecting settlements in personal injury cases are not loans, and therefore not subject to Georgia’s Payday Lending Act (PLA) and the Industrial Loan Act (ILA). “We agree with our Court of Appeals that, when the obligation to repay is only contingent and limited, there generally is no ‘loan’” as defined by the ILA, argued the court. In addition, “When funds are advanced under an agreement that repayment is required only upon the occurrence of a contingency, and even then, perhaps only to a limited extent … the funds are not, we think, ‘advanced to be repaid,’” under the PLA.
• CFPB announced a settlement on October 24 with Cash Express, LLC, a Tennessee-based small-dollar lender. The company agreed to pay a $200,000 fine and refund more than $32,000 to borrowers. CFPB claimed that Cash Express violated the Consumer Financial Protection Act “by deceptively threatening in collection letters that it would take legal action against consumers, even though the debts were past the date for suing on legal claims.”
• The Conference of State Bank Supervisors (CSBS) officially launched its second lawsuit against the OCC on October 25. CSBS argues that “Congress has not granted the OCC authority to award bank charters to nonbanks,” and thus their fintech charter proposal is illegal. This is not the first time CSBS has sued the OCC over this issue. To read more about CSBS’ earlier legal action, please click here.

Over the past several weeks, there have been many legal developments that could potentially impact the small-dollar lending industry. Online lenders should track and review cases like these to determine what they may mean for their own particular business.