A recent decision from the US District Court for the Eastern District of Pennsylvania, Kane v. Think Finance, Inc., Civ. No. 14-cv-7139, 2016 WL 183289 (E.D. Pa. 2016), has received a good deal of attention. Although it arises in the context of a payday lender, some market participants have questioned whether the decision is applicable to marketplace lending and other similar financial structures. Marketplace lending involves online platform operators, usually nonbank entities, that partner with a state or national bank, which in turn originates the loans to consumers. After a short holding period, the loans are then sold by the bank to the platform operator, which will subsequently sell the loans to third-party purchasers while retaining servicing responsibilities. Under these facts, the consensus is that such loans should be considered exempt from usury laws in states other than the state where the originating bank is organized due to principles of federal preemption that apply to state usury limits.
The Think Finance case stems from a number of actions filed against Think Finance, Inc. (Think Finance), a payday lender, by the Pennsylvania Office of the Attorney General (OAG). The OAG alleges that Think Finance was the de facto lender for a series of loans made through 2012 in a partnership with the now dissolved First Bank of Delaware and that the loans had interest rates (in the 200% to 300% range) that were usurious under Pennsylvania law. The OAG calls the arrangement with First Bank of Delaware a “scheme to avoid state usury laws” and an impermissible “rent-a-charter” arrangement. In ruling on a motion to dismiss filed by Think Finance, the district court held that federal preemption did not apply to the causes of action against Think Finance arising out of its lending activity because there were no claims against a bank. Therefore, the court allowed the claims against Think Finance regarding whether the loans were usurious under Pennsylvania law to proceed.