Washington State Department of Financial Institutions



P.O. Box 41200
Olympia, Washington 98504-1200
Telephone (360) 902-8703
TDD (360) 664-8126
FAX (360) 664-2258


Re: Exemption/Preemption

To Whom It May Concern:

This correspondence is in response to inquires and positions submitted to The Department of Financial Institutions regarding preemption of Washington’s Consumer Loan Act, Chapter 31.04 RCW (the Act).

With respect to arguments regarding state law, the Department’s opinion is that the licensing provision in RCW 31.04.035 is a voluntary standard.  The exemption from usury conveyed by the Act is a privilege of licensing that a company may choose to obtain, a privilege that grants the authority to make loans at rates in excess of Washington’s usury limits.  The Department’s opinion is that the licensing provision of the Consumer Loan Act is not a requirement.  Within this context, the Department views the exemption provisions in RCW 31.04.025 as a “belts and suspenders” restatement of the most favored lender doctrine and an exemption for depository institutions with existing state or federal charters.  The issue of whether a subsidiary of a federal thrift or bank has access to the most favored lender doctrine is still an open question of law, and the Department declines to state an opinion. In the past, the Department has conducted enforcement actions against licensees that did not license branches, but not against companies with no license at all.  It is the Department’s opinion that a company that makes loans at rates authorized by the Consumer Loan Act without a consumer loan license potentially violates the state’s usury statute, a statute we do not enforce, not the Consumer Loan Act.  This Department cannot and will not provide you with an opinion restricting the Attorney General’s powers to enforce the state’s usury law.

The Department recognizes the preemptive effect of section 501 of the Depository Institutions Deregulation and Monetary Control Act of 1980, 12 U.S.C., section 1735f-7 on certain restrictions on interest rates, fees, and other charges in state law for first mortgage loans.  For example, if you are a consumer loan licensee when making a first mortgage loan, the state law restrictions on the loan origination fee would be preempted.  However, as a licensee, a company would still be subject to the un-preempted provisions of the law, including examination by this office and payment of annual assessments to the state of Washington.

In summary, we do not believe that a lender is required to be licensed under the Consumer Loan Act, rather that a licensee chose to be licensed to avail itself of the authority to exceed the state’s usury limit granted by such a license.  A licensee may have determined that it may avail itself of such authority under an alternative legal framework, and surrendered its Washington Consumer Loan license.  However, we note that such a course of action may subject the company to liability for a violation of the state’s usury statute.  Proceed at your own peril.



Whittier Johnson, program manager