Legal Seminar, Denver, CO

True Lender Doctrine: Substance Over Form

• CashCall, Inc. v. Morrisey , 2014 W. Va. LEXIS 587 (May 30, 2014) – CashCall operated an Internet loan program that used a South Dakota bank to fund consumer loans to WV customers in excess of the WV usury rate. – State initiated usurious lending claims against CashCall, arguing that CashCall was the true lender because it had the predominant economic interest in the loans. – CashCall argued that the real lender should be determined by reference to which entity set terms and conditions of loans and extended the credit – The court ruled that the “predominant economic interest” test is the proper standard to determine the true lender because it examines the substance and not just the form of the bank-nonbank agreements. • Relied on true lender authorities in removal cases, Rehoboth , and WV usury policy • Distinguished Krispin on the grounds that nonbank entity in that case was a corporate affiliate of the bank.

For Discussion Purposes Only

True Lender Doctrine: Substance Over Form (cont.)

• Several true lender decisions have followed the approach in Morrisey of looking at substance over form of bank-nonbank arrangements. – Commonwealth of Pennsylvania v. Think Finance, Inc. , et al., Civil Action No. 14-cv-7139 (E.D. Pa) (payday lender). – CFPB v. CashCall, Inc. , 2016 WL 4820635 (C.D. Cal. Aug. 31, 2016) (payday lender) – Colo. ex rel. Meade v. Avant of Colo. LLC , 2017 U.S. Dist. LEXIS 218763 (D. Colo. Dec. 20, 2017) (marketplace lender) – CashCall, Inc. v. Md. Comm'r of Fin. Regulation , 448 Md. 412 (2016) (credit service business) • As in Morrisey , these cases generally consider the totality of the circumstances to determine which entity has the predominant economic interest in the transaction, and thus is the true lender.

For Discussion Purposes Only