As the result of an investigation sparked by a consumer complaint, the Maryland Office of the Commissioner of Financial Regulation (Commissioner) has alleged a Missouri state-chartered bank and its fintech partners violated various Maryland licensing and credit-related statutes. The case is Salazar v. Fortiva Financial, LLC, Atlanticus Services Corporation, and the Bank of Missouri s/b/m Mid-America Bank & Trust Company.
Upon receiving a complaint from a consumer regarding the Bank, the Commissioner conducted an investigation which showed the consumer, a Maryland resident, obtained a “Fortiva Consumer Loan” in the amount of $5,000 (less a $99 fee) with an annual percentage rate of 35.98% payable over 48 months. The Bank originated the personal loan, and the payments to be made by the consumer totaled $9,308.16.
During the investigation, the Commissioner discovered that neither the Bank, Fortiva, or Atlanticus were Maryland corporations, and none held Maryland licenses. The investigation showed that the Bank began offering and issuing personal loans to consumers in 2014 via direct solicitation and continues to offer retail credit financing products to Maryland consumers at over 150 retail locations in Maryland. According to the Bank’s numbers, over 7,000 credit accounts issued by the Bank to Maryland residents remain outstanding.
The Charge Letter filed by the Commissioner alleges that the Bank of Missouri (Bank) issued loans to Maryland consumers, while Fortiva Financial, LLC (Fortiva) and its parent company Atlanticus Services Corporation (Atlanticus), each Georgia Corporations, processed credit applications relative to the loans and then serviced the loans for the Bank. The Bank owned the loans throughout their life cycle and retained the creditor status, but Atlanticus/Fortiva handled all of the consumers’ interactions relative to the loans.
The Commissioner has alleged these actions violated the following state laws:
- The Maryland Consumer Loan Law, by making consumer loans without being licensed.
- Maryland’s Credit Grantor Closed End Credit Provisions, for offering and/or making installment loans in Maryland without being licensed.
- Maryland’s Credit Grantor Revolving Credit Provisions, making a loan or extension of credit without being licensed.
- The Maryland Credit Service Businesses Act, by assisting Maryland consumers in obtaining an extension of credit by accepting and processing credit applications for credit owned and/or offered by a third-party
- The Maryland Collection Agency Licensing Act, soliciting and/or collecting a consumer claim on behalf of another without a license.
Violations of these statutes can result in hefty fines. For each violation occurring before October 1, 2018, the Commissioner may impose a penalty of up to $1,000.00 for the first violation and up to $5,000.00 for each subsequent violation. For each violation occurring on or after October 1, 2018, the Commissioner may impose a penalty of up to $10,000.00 for the first violation and up to $25,000.00 for subsequent violations.
The Bank denies it violated the statutes and removed the matter to federal court, arguing that since it is a federally chartered institution, the state law claims are preempted by the Federal Deposit Insurance Act.
It seems like there is a whole new world emerging as financial service companies and fintech companies, in particular, try to meet the needs of consumers. Fintech companies may have the ability to meet consumers’ technological needs better than traditional banks, but do they get to take advantage of the benefits given to federally chartered banks? Do federally chartered banks retain their exemption from state law when they have little to no interaction with the consumer? The state of Maryland at least says no. It’s an interesting question, and we’ll see what the federal court decides in this case. That said, accounts receivable entities would be well advised to watch this case and inquire about their fintech clients’ licensing status.