Minnesota Supreme Court ruling allows state to regulate Internet loans to residents

By Kerry Goff | Nov 30, 2015

MINNEAPOLIS (Legal Newsline) - In October, the Minnesota Supreme Court ruled that out-of-state Internet payday lenders will have to follow the state’s lender laws.

Minnesota Attorney General Lori Swanson, who filed suit in 2011 against Integrity Advance, LLC, located in Delaware, argued that payday lenders need to be licensed with the Minnesota Department of Commerce and comply with its strict payday lending law, including rules on interest rates and term limits.

Swanson has filed eight lawsuits against online lenders since 2010, obtaining judgments or settlements in all of them. This most recent ruling is significant since more lending is moving to the Internet, where some payday lenders attempt to avoid state lending and consumer protection laws.

“The most common model, and the only one that eliminates legal exposure, is [for lenders] to comply with all of the laws in each state where borrowers reside,” Alan S. Kaplinsky, who leads the nationally-known Consumer Financial Services Group at Ballard Spahr, told Legal Newsline.

“Some payday lenders are located offshore and they hope that that will insulate them from exposure to the state laws where the borrowers reside. Some payday lenders use the tribal model in which they take the position that the sovereign immunity of Indian tribes protects them.”

There are few other cases that match this most recent Minnesota Supreme Court decision, but Kaplinsky explained that Quick Payday, Inc. was part of a similar ruling in Utah prior to the Integrity Advance case.

“The best model, and the safest model, is to comply to the extent possible with the laws of the states where the forwards reside,” Kaplinsky said.

He added that if lenders are unable to meet particular guidelines set in place to protect consumers, they will not be able to lend in particular states.

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