Commonwealth Court of Pennsylvania.

CASH AMERICA NET OF NEVADA, LLC, Petitioner v. COMMONWEALTH of Pennsylvania, Department of Banking, and the Honorable Steven Kaplan, in his official capacity as Secretary of Banking of the Commonwealth of Pennsylvania, Respondents.

CASH AMERICA NET OF NEVADA LLC v. COMMONWEALTH

This case filed in the Court’s original jurisdiction concerns the reach of Pennsylvania’s usury laws in regard to “payday” loans that are made solely by means of the Internet. The Supreme Court has explained: “Payday loans are short-term, high-interest-or-fee loans that are generally secured by a post-dated check or a debit authorization executed by the borrower and, subsequently, presented by the lender after a predetermined period, usually set at two weeks to coincide with the borrower’s payday.” Pennsylvania Department of Banking v. NCAS of Delaware, LLC, 596 Pa. 638, 641, 948 A.2d 752, 754 (2008). The lending company has no office and no personnel physically present in Pennsylvania.

On , the Secretary of Banking Steven Kaplan published in the Pennsylvania Bulletin a “Notice to those Engaging or Considering Engaging in Nonmortgage Consumer Lending to Pennsylvania Residents,” 38 Pa. B. 3986 (2008) (Notice). The Notice advised interested persons that it is “the position of the Department of Banking (Department) that engaging in nonmortgage consumer lending to Pennsylvania residents by any means, including by means of the internet or by mail, constitutes engaging in such business ‘in this Commonwealth’ as contemplated by section 3.A of the Consumer Discount Company Act (CDCA), [Act of ended ] (7 P.S. § 6203.A).” Id. Section 3.A provides:

A. [N]o person shall engage or continue to engage in this Commonwealth, either as principal, employe, agent or broker, in the business of negotiating or making loans or advances of money on credit, in the amount or value of twenty-five thousand dollars ($25,000) or less, and charge, collect, contract for or receive interest, discount, bonus, fees, fines, commissions, charges, or other considerations which aggregate in excess of the interest that the lender would otherwise be permitted by law to charge if not licensed under this act on the amount actually loaned or advanced, or on the unpaid principal balances when the contract is payable by stated installments except a domestic business corporation organized under or existing by virtue of the [Business Corporation Law of 1988(BCL), 15 Pa.C.S. §§ 1101-4161], after first obtaining a license from the Secretary of Banking of the Commonwealth of Pennsylvania in accordance with the provisions of this act.

A person licensed is authorized to negotiate and to make loans under the rates, terms and conditions contained in the CDCA, which can be higher.

The Notice advised that non-depository entities engaged in making such loans at more than 6% that are not already licensed must be licensed by . Entities that wish to become eligible to engage in such lending must obtain a license. The Notice explained that the Department took the position in prior Interpretive Letters that a non-depository entity without offices of any kind in Pennsylvania or people physically present here and acting on behalf of the entity as principal, employee, agent or broker was not engaged in business “in this Commonwealth” within the meaning of Section 3.A and would not be required to obtain a license. With the rise in Internet-based lending activity it became clear to the Department that Pennsylvania consumers were “being exposed to the very lending practices that the CDCA was enacted to protect them from.” 38 Pa. B. at 3987. The Department therefore determined that its previous position would no longer be followed and that licensing would be required for all such lenders, with a transition period requiring licensing by .