A Colorado state court determined that securitization trusts that acquire marketplace lender loans originated to Colorado consumers are subject to Colorado jurisdiction. The state court's ruling derailed an attempt by securitization trusts to escape the conflict between Colorado and marketplace lenders over rates and fees that can be charged to the residents of Colorado.
In 2017, the Administrator of the Colorado Uniform Consumer Credit Code (the "UCCC") sued Marlette Funding ("Marlette") (i.e., a financial services technology company) and Avant (i.e., a marketplace lender) in separate actions, claiming that they provided loans to Colorado consumers and charged interest rates above the legal rate allowed by the UCCC (see here and here for coverage of related memoranda). The Administrator subsequently modified the Complaint to name the securitization trusts holding the Avant and Marlette Colorado loans (the "Trusts") and the two trustees of the trusts as co-defendants. According to the Administrator, the Trusts violated the UCCC by collecting impermissible finance charges and late fees. The Administrator contended that the loans were originated by Avant or Marlette, and imposed rates not permissible for nonbank lenders and the Trusts would be unable to collect the same rate of interest as the originating partner banks.
As described more fully in a Cadwalader memorandum, the Trusts argued that they never took advantage of the benefits and protections of Colorado and their only association to the forum was a small amount of income based on Colorado loans. On April 10, 2019, the Denver District Court denied the Trusts' motions to dismiss the case for lack of personal jurisdiction. Cadwalader attorneys noted the court determination that, by acquiring Colorado consumer loans, the Trusts qualify as a "creditor" pursuant to Colorado's UCCC.
Cadwalader attorneys stated that under the court's ruling, secondary market purchasers who acquire even a modicum of Colorado consumer loans could face actions that seek the disgorgement of charges and other civil penalties over any loan that allegedly does not comply with the UCCC.
Several recent rulings illustrate the risks that persist in some states for marketplace lenders utilizing the bank origination model.
Cadwalader attorneys reviewed a Colorado case concerning marketplace lending in which certain securitization trusts that had acquired the Defendant's loans were charged for violations of the state's Uniform Consumer Credit Code.