Attorney General's Opinion
Attorney General, Richard Blumenthal
October 24, 2005
Senate Republican Leader
You have requested an opinion as to whether the provisions of Public Act No. 05-107, An Act Protecting Consumers in the Making of Income Tax Refund Anticipation Loans (Act), and in particular the provision limiting the interest rate on income tax refund anticipation loans, are enforceable (a) against national banks doing business in Connecticut or (b) against "facilitators" of such loans by national banks.
As you know, the Act was enacted to protect consumers who obtain income tax refund anticipation loans from abusive lending practices. In particular, the Act is aimed at limiting the extraordinarily excessive interest rates typically charged for such loans that can be especially punitive to consumers when a tax refund takes longer than usual to be received. The Act also prohibits income tax refund anticipation loans from being made at any location whose principal business is not tax preparation.
I conclude that the protections against abusive lending practices embodied within the Act are fully enforceable against "facilitators" of refund anticipation loans regardless of the source of the loan financing and are not preempted by federal law. "Facilitators" are those that process, receive or accept a loan application, issue a check representing the loan proceeds, or otherwise participate in allowing the making of the loan. Additionally, the General Assembly expressly exempted national banks from the provisions of the Act by exempting all banks from the Act's definition of "facilitator."
The Act amended General Statutes § 42-480, which addresses the making of income tax refund anticipation loans. Such loans are defined as “loan[s] arranged to be paid directly from the proceeds of a borrower’s income tax refund,”
A facilitator is defined as person who, either individually or with another, does any of the following: (1) makes a refund anticipation loan; (2) processes, receives or accepts for delivery an application for a refund anticipation loan; (3) issues a check in payment of refund anticipation loan proceeds; or (4) in any other manner acts to allow the making of a refund anticipation loan.
The Act adds two new provisions to § 42-480. First, it provides that no refund anticipation loan shall be made at any location other than a location in which the principal business is tax preparation.2
Section 42-480, as amended by the Act, imposes a fine of $500 for each violation of either the existing disclosure provisions or the Act’s new provisions. It further provides that the Attorney General may bring a civil action on behalf of an aggrieved borrower against a facilitator for three times the amount of the refund anticipation loan fee, plus attorney’s fees, for violations of § 42-480.
Section 42-480 restricts and regulates facilitators of refund anticipation loans. Facilitators are required to make the requisite disclosures to borrowers. Facilitators are liable for violations, including the interest rate restrictions. The definition of facilitator expressly excludes national banks. Thus, in response to your question whether the Act’s provisions can be enforced against national banks, the answer is that, by its express terms, the Act does not apply to national banks.
The Act does, however, apply to facilitators of refund anticipation loans who may facilitate – that is, process, receive or accept a loan application, issue a check representing the loan proceeds, or otherwise participate in allowing the making of the loan – a loan made by a national bank.
Under the National Bank Act, states are prohibited from exercising regulatory authority that forbids or significantly interferes with the banking powers of national banks.3 12 U.S.C. § 484(a); see Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 33-34 (1996). There is little question that preemption of state authority under the National Bank Act encompasses the regulation of interest rates charged by national banks. 12 U.S.C. § 85; see Smiley v. Citbank (
Instead, the Act regulates the activities of a facilitator. It imposes on a facilitator disclosure requirements and precludes a facilitator from participating in the making of a refund anticipation loan that exceeds the Act’s interest rate limits. Nothing in the National Bank Act or the regulations promulgated thereunder precludes states from regulating a non-bank facilitator. Moreover, because the Act does not apply to national banks, nothing in the Act’s provisions serves to prevent or significantly interfere with a national bank’s powers. See Barnett Bank, 517 <st2:country-region>
For these reasons, we conclude that the Act, by its own terms, does not apply to national banks, but that the Act is enforceable against facilitators of refund anticipation loans made by national banks.
Assistant Attorney General
1 General Statutes §§ 36a-555 to 36a-573 relate to licensed non-depository small loan lenders. The definition of facilitator also excludes persons acting solely as intermediaries and having no dealings with the public in making refund anticipation loans.
2 The purpose of this provision, as reflected in the Act’s legislative history, is to prevent abusive practices by non-tax preparers, such as car dealers and furniture and appliance retailers, who offer refund anticipation loans to finance retail purchases. Thus, the intent of this provision is to limit the making of refund anticipation loans to persons associated with the tax preparation business. See
3 National banks are depository institutions chartered by the federal government to engage in the business of banking. See 12 U.S.C. §§ 26, 27, 221, 221a. You reference Wachovia Bank,