July 11, 2022
Department of Banking Issues Consent Order: Reminds Connecticut Consumers, Small Loan Lenders, and Consumer Collection Agencies That Payday Loans With Interest Rates Exceeding the Maximum Allowed Under State Law are Unenforceable and Void in Connecticut
HARTFORD — The Department of Banking (DOB) came to an agreement with TrueAccord Corp., through a consent order it issued on June 28, 2022. TrueAccord, a consumer collection agency licensed in Connecticut, violated Connecticut law by collecting on small loans with excessive interest rates made by unlicensed out-of-state lenders affiliated with federally recognized tribes. As a result of the Commissioner’s Order, 103 Connecticut consumers will receive refunds totaling approximately $44,000.
Banking Commissioner Jorge Perez reminds Connecticut consumers, as well as those companies engaged in small loan lending and consumer collections, that any loan with excessive interest rates, commonly referred to as payday loans, are void and cannot be collected on in Connecticut.
“While the Department has done an excellent job in minimizing what is widely known as ‘payday lending’ here in Connecticut, we are still seeing some unlicensed out-of-state companies engaging in this practice and consumer collection agencies attempting to collect on this debt. I want to be clear, that any company originating loans in this state which violate Connecticut law with excessive interest rates and collection agencies attempting to collect on this debt will be investigated by the Department” said Commissioner Perez.
Under Connecticut law and consistent with a 2015 Department memorandum, consumer collection agencies licensed in Connecticut may not collect on small loans made by unlicensed non-exempt lenders, including those affiliated with tribes. In addition, small loans made to Connecticut consumers by lenders neither licensed nor exempt that charge an interest rate greater than 12% per year are illegal. Under Connecticut law, loans made by unlicensed non-exempt lenders that exceed allowable interest rates are void and unenforceable.
Since this consent order involves a consumer collection agency working on behalf of a tribal lender, it highlights that while tribal sovereign immunity shields federally recognized tribes and entities that can prove they are “arms of the tribe” from enforcement actions for certain violations of state law, this immunity does not extend to consumer collection agencies and other persons working on behalf of such tribes who violate state law
Connecticut law requires that any person or entity engaging in small loan activity must obtain a license with the Department, unless expressly exempt. A small loan is a loan of money or extensions of credit, or the purchase of, or an advance of money on, a borrower’s future income when the amount or value is fifteen thousand dollars or less and the APR is greater than 12%.
Small loan company activity requiring licensure includes:
- making a small loan to a Connecticut borrower
- offering, soliciting, brokering, directly or indirectly arranging, placing or finding a small loan for a prospective Connecticut borrower
- engaging in any other activity intended to assist a prospective Connecticut borrower in obtaining a small loan, including generating leads
- receiving payments of principal and interest in connection with a small loan made to a Connecticut borrower
- purchasing, acquiring, or receiving assignment of a small loan made to a Connecticut borrower
- advertising or causing to be advertised a small loan in this state.
Small loans that fail to comply with the licensing requirements or that contain any condition or provision inconsistent with statute shall not be enforced in this state. Such small loans shall be void and no person shall have the right to collect or receive any principal, interest, charge, or other consideration. Furthermore, any person that violates such licensing requirements or attempts to collect or receive principal, interest, charge or other consideration on such small loans shall be subject to administrative action and sanctions by the Department, including but not limited to, a civil penalty up to $100,000 dollars per violation.
Connecticut consumers who have been contacted by collection agencies seeking to collect on illegal loans may file a complaint with the Department here.
(o): 860 240 8105
(m): 860 936 0389