Interpretive Letter

DIVISION OF CONSUMER SERVICES
STATE OF WASHINGTON
DEPARTMENT OF FINANCIAL INSTITUTIONS
P.O. Box 41200
Olympia, Washington 98504-1200
Telephone (360) 902-8703
TDD (360) 664-8126
FAX (360) 664-2258
http://www.dfi.wa.gov/cs

No. 98-01CS

TO:	All Check Casher/Seller Licensees with Small Loan Endorsement
FROM:	Mark Thomson, Assistant Director
DATE:	October 12, 1998
SUBJECT:	Renewal, Extension, Repayment, and Collection of Loans

Through investigations of licensees with small loan endorsements, the Department has discovered that several are not in compliance with WAC 208-630-085(2)(a). This rule prohibits a loan made under chapter 31.45 RCW, the Check Cashers and Sellers Act (the Act), from being repaid by the proceeds of another loan by the same lender or an affiliate.

WAC 208-630-085(2) states a licensee with a small loan endorsement is subject to the following restrictions:

• "No loan made under this act shall be repaid by proceeds of another loan made under chapter 31.45 RCW by the same lender or affiliate. The proceeds from any loan made under this act shall not be applied to any other loan from the same lender or affiliate;
• A licensee shall not make any loan under authority granted by chapter 31.45 RCW under any name or at any place of business other than that named on the license and small loan endorsement;
• A licensee may not hold a check or checks in an aggregate face amount of more than five hundred dollars plus allowable fees from any one borrower at any one time;
• A licensee may not hold a check for more than thirty-one days unless requested to do so by the borrower. The licensee may not charge additional fees for holding the check; and
• A licensee may not charge an additional fee to cash a monetary instrument issued as part of a small loan made under chapter 31.45 RCW."

RCW 31.45.073(3) requires the check held for repayment of a loan must be deposited as soon as practicable after the date of the check or draft has passed. The licensee must be able to provide an audit trail through daily cash sheets, bank deposit, or other records that this has occurred. Examiners have found licensees are collecting the interest due in cash and holding the check for an additional period of time. This is prohibited by WAC 209-630-085(2) above.

An existing loan can not be repaid by the proceeds of another loan. Again, the licensee must be able to provide documentation showing the existing loan has been paid before another loan can be made to the customer. The following are examples of what the Department has found:

• A loan is granted for $100.00 on July 1, 1998 due July 14, 1998. A check is held for $115.00 for repayment of the loan. The customer requests the licensee extends or holds the check for an additional period. The licensee collects an additional $15.00 in cash for the interest due and agrees to hold the check for an additional fourteen days. This is a violation of WAC 208-630-085(2)(d) and will be cited in an examination. In addition, refunds will be required to consumers.
• A loan is granted for $100.00 on July 1, 1998 due July 14, 1998. The borrower advises on July 14, 1998 that the check being held will not clear his bank account. They also request an additional $100.00. The licensee either returns the check for $115.00 received July 1, 1998 or deposits the check. The borrower then gives the licensee a check for $230. 00 and signs a new note and disclosure statement. If the check is returned the borrower only receives $85.00 from the proceeds of the new advance. The other $115,00 is used to repay the July 1, 1998 advance and fee. This is the most likely scenario since the licensee is assured collection of the first loan. It is possible the borrower would receive a check for $200.00 but would only have $85.00 cash available after the original check for $115.00 cleared their account. Either scenario is a violation of WAC 208-630-085(2)(a) and will be cited in an examination.

WAC 208-630-085(1)(b) allows a licensee to charge or collect a fee equal to or less than twenty-five dollars for a check returned unpaid by the bank drawn upon. Only one fee may be collected with respect to a particular check even if it has been redeposited and returned more than once.

• Some licensees are erroneously accessing the provisions under RCW 62A.3-515, which gives certain legal rights to holders of dishonored checks. This section allows reasonable attorneys' fees, and three times the face amount of the check or three hundred dollars, whichever is less, as part of the damages payable to the holder of the check. But it does not apply when a check accepted as payment of a small loan is dishonored. If charges described are found in an examination, the licensee will be cited for violation of WAC 208-630-085(1)(b).

Licensees are reminded that in addition to required refunds to consumers for prohibited charges; the licensee is subject to RCW 31.45.170 Violation - Penalty, which reads:

"Every licensee violating or failing to comply with any provision of this chapter or any lawful direction or requirement of the director is subject, in addition to any penalty otherwise provided, to a penalty of not more than one hundred dollars for each offense, to be recovered by the attorney general in a civil action in the name of the state. Each day's continuance of the violation is a separate and distinct offense."

Examiners will be reviewing small loan transactions closely for compliance with RCW 31.45.073(3) and WAC 208-630-085(2). Collection charges will also be scrutinized for compliance. Licensees are reminded it is their responsibility to provide examiners with documentation supporting their compliance with the statute and supporting rules.