HARRISBURG — A recent Commonwealth Court decision against Florida-based companies should serve as a warning to lenders that do business over the Internet, a Washington, D.C., attorney says.
The Commonwealth Court earlier this year upheld a cease-and-desist order first issued by the Pennsylvania Department of Banking and Securities in June 2015 against an unlicensed Internet lender and loan purchaser.
In a memorandum opinion filed on Jan. 22, Judge Bonnie Brigance Leadbetter ordered the companies to cease and desist from charging interest in fees in excess of six percent.
“This case should be a cautionary tale to all marketplace lenders and other online lenders of the need to take seriously state licensing, usury and other compliance requirements of the states where they offer loans, said John Kromer, a partner at BuckleySandler.
"Lenders doing business through the Internet should understand that the risk of non-compliance is very high, even existential in nature in the current regulatory environment."
The Florida-based respondents — Autoloans LLC, Car Loans LLC, Loan Servicing Solutions LLC by William McKibbin III, Kevin Cronin of Boynton Beach, Mark Edward Weiner of Delray Beach and Kelly S. Bonner of Wellington — began making loans to Pennsylvania residents secured by motor vehicles titled and registered in Pennsylvania in 2013.
Interest rates on the loans allegedly exceeded 200 percent - far greater than the six percent interest rate allowed under Pennsylvania law.
According to an investigation conducted by the Banking and Securities Department that followed consumer complaints, the respondents allegedly lent money to at least 163 state residents at illegal interest rates greater than 200 percent.
The department also alleges customers didn't receive contract terms and conditions until after loans were made, and that the businesses were intentionally difficult for consumers to reach.
The fine against the defendants is significant, Kromer said, noting there are other monetary penalties in this case. Those include a refund of interest payments greater than six percent.
“States view their
consumer protection laws as extending to lenders located out of state,
including those doing business through the Internet, and they will
enforce those laws against companies that make loans to residents of
their states,” Kromer said.
Other matters concerned the court.
In order to secure a loan with the
respondents, consumers were allegedly required to complete an online loan
application, providing highly detailed personal information.
Also, they were allegedly required to
electronically sign the loan documents and a power of attorney, making
the “lienholder the attorney-in-fact for purposes related to the motor
vehicle to secure the loan."
And consumers were allegedly required to install a GPS tracker on the motor
Executives and control persons of lenders alike should take note of the case, Kromer said, because the suit holds companies and individuals responsible.