Lending is regulated by fifty states and several federal agencies at once, and the rules change depending on who the borrower is, what the money is for, and which entity actually makes the loan. A product that is legal as a commercial loan in one state can need a license, a rate cap, and a disclosure form in the next, and one that works for business borrowers can trigger the Truth in Lending Act the moment a consumer signs up. We advise lenders, fintech platforms, merchant cash advance providers, and the banks that partner with them on how their products fit the rules, and we represent them when a regulator, attorney general, or class plaintiff says they do not.
Licensing And Usury
Most states require a license to make or broker certain loans, and the triggers vary: consumer versus commercial purpose, loan size, rate, and whether the lender is located in the state or simply lends to its residents. The California Financing Law, for example, covers many commercial loans as well as consumer loans. Usury limits also vary widely, along with the exemptions for licensed lenders, larger commercial loans, and choice-of-law clauses that point to a lender-friendly state. National banks and insured state banks can export their home-state interest rates nationwide under 12 U.S.C. 85 and Section 27 of the Federal Deposit Insurance Act, which is the foundation of most bank partnership programs.
Consumer Credit Rules
Credit extended to individuals for personal, family, or household purposes brings in the federal consumer finance statutes. The Truth in Lending Act and Regulation Z require standardized disclosures of the finance charge and annual percentage rate, and impose specific rules for credit cards, open-end credit, and mortgages. The Equal Credit Opportunity Act and Regulation B prohibit discrimination and require adverse action notices, and unlike TILA they apply to business credit too. The Fair Credit Reporting Act governs the use of credit reports. The Consumer Financial Protection Bureau enforces these laws along with its authority over unfair, deceptive, or abusive acts or practices. Its priorities shift with each administration, while state regulators and attorneys general have stepped up their own enforcement.
Bank Partnerships And True-Lender Risk
In a bank partnership, an insured bank originates loans that a fintech platform markets and services, and the platform or its investors then buy the loans or receivables. The model lets the program use the bank's rate exportation, but it draws two lines of attack. In Madden v. Midland Funding, the Second Circuit held that a non-bank buyer of a national bank's loan could not rely on the bank's preemption, though OCC and FDIC rules issued in 2020 now say a loan's permissible rate is valid when made. True-lender challenges go further, arguing the platform is the real lender because it holds the predominant economic interest. Several states, including Illinois, have codified that test. We structure programs to withstand that scrutiny.
Money Transmission And Payments
Products that hold or move customer funds can require state money transmitter licenses in nearly every state, plus registration with FinCEN as a money services business and a Bank Secrecy Act compliance program. Many states have adopted the Money Transmission Modernization Act, which standardizes some definitions and the net worth and bonding requirements, but exemptions still differ, especially for agents of the payee and payment processors. Earned wage access, buy now pay later, and embedded payments products often sit close to these lines. We trace the flow of funds through each product, identify where licenses are required or an exemption applies, and help clients decide whether to license, partner with a licensed provider, or redesign the flow.
Examinations, Investigations, And Litigation
Regulatory trouble arrives as an exam finding, a civil investigative demand, a state cease-and-desist order, or a class action alleging the loans are void for usury or unlicensed lending. Each calls for a different response, and early choices about what to produce and what to concede affect all the others. We respond to CIDs and examination findings, negotiate consent orders, and defend usury, licensing, and UDAP claims in state and federal court, including motions to compel arbitration under the borrower agreement. On the compliance side, the most common mistakes are relying on a choice-of-law clause the borrower's home state will not honor and treating revenue-based or merchant cash advance products as exempt without testing the recharacterization risk.
