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SB 6025

Protecting consumers from predatory loans.

2023-2024 Regular Session Introduced by Manka Dhingra and 9 co-sponsors

Strengthens Washington's Predatory Loan Prevention Act to close rent-a-bank loopholes with a true lender test, void unlicensed high-cost loans, and protect Washington borrowers.

Effective date 6/6/2024.
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WeVote Research Nonpartisan
Bill Summary · SB 6025

SB 6025 — Protecting Consumers from Predatory Loans

Status: Chapter 249, 2024 Laws. Governor signed 3/25/2024. Effective date: 6/6/2024 (prospective application only; see Sec. 5).

Purpose / Intent

To strengthen Washington’s Consumer Loan Act (RCW chapter 31.04) to prevent evasion of state interest‑rate and licensing limits—particularly targeting high‑cost “rent‑a‑bank” schemes involving fintech partners and out‑of‑state banks—and to protect borrowers from predatory loan products.

Key provisions

  • Names the measure the “Predatory Loan Prevention Act.”
  • Expands the Act’s reach:
    • Applies to loans made to persons physically located in Washington, not only state residents.
    • Broadens the statutory definition of “loan” to cover money or credit provided under any medium (paper, internet, phone, etc.) and any related charges or conditions.
  • Prohibits evasion devices and disguises, including (non‑exhaustive):
    • Sale‑and‑leaseback disguises of loans,
    • Pretend installment-sales with “rebates” that are actually loan proceeds,
    • Any scheme to obtain a loan with a rate, fee, or charge above what the Act permits by any channel (mail, internet, electronic).
  • Codifies a “true lender”/“predominant economic interest” test:
    • A person is treated as the lender subject to the Act if they hold, acquire, or maintain the predominant economic interest in the loan or if the totality of circumstances shows the person is effectively the lender despite structuring to evade the law.
  • Remedies and enforcement:
    • Except for residential mortgage loans, loans made by persons violating licensing requirements are declared null, void, uncollectible, and unenforceable.
    • Violations remain violations of the Consumer Protection Act; unlicensed lenders must refund fees and interest per existing law.
  • Clarifies exemptions (e.g., banks, pawnbrokers, certain federal programs) and adds an exemption for nonrecourse litigation funding (but not for advances requiring repayment if the funder’s claimant loses).
  • Rulemaking: preserves director (DFI) rule authority and places burden on claimants to prove any claimed exemption.
  • Prospective application: amendment (House) adds Sec. 5 — changes apply only to loans issued after the effective date unless renegotiated/modified after that date.

Who is affected

  • Primary: fintech firms and third‑party lenders that partner with out‑of‑state/state‑chartered banks to offer high‑rate loans to Washington consumers; entities purporting to evade licensing or rate limits.
  • Consumers/borrowers in Washington (including nonresidents physically present in the state when a loan is made).
  • Regulator: Washington Department of Financial Institutions (DFI), which gains clearer authority to apply the true‑lender test and enforce licensing/rate limits.
  • Banks, mortgage servicers, and other currently exempt entities (some exemptions clarified or narrowed).

Context / Impact

  • Motivated by DFI findings of some fintech partnerships producing loans with interest rates reported between 19% and 225% (DFI survey referenced in testimony: ≈ $18M outstanding, ~6,700 borrowers among respondents).
  • Supporters: say it closes rent‑a‑bank loopholes, protects consumers from excessive rates and deceptive products (aligns with laws in several other states).
  • Opponents (summary from testimony): contend the predominant‑economic‑interest test conflicts with some judicial precedent, could restrict access to credit for subprime borrowers, and disrupt bank‑fintech business models.
  • Appropriation: None specified. Fiscal note: available.

Implementation / Timeline

  • Bill enacted and chaptered (Chapter 249, 2024 Laws).
  • Effective 6/6/2024. Per adopted amendment, substantive changes apply prospectively only (do not retroactively affect loans issued before the effective date unless renegotiated/modified).

Compiled from official sources — confirm details with the bill’s official record.

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