From the: Fall 2022 Consumer Services Newsletter

Refund Anticipation Loans

It’s time to get personal – get more information about personal loans that is. To originate personal loans – also known as consumer finance loans – in the state of Washington, entities must hold a Consumer Loan Act (CLA) license. 

Along with that comes the regulatory requirements of the CLA. DFI wants to highlight some key requirements that licensees originating personal loans must comply with.

Fee Restrictions

Under the CLA, licensees are limited to charging a nonrefundable, prepaid, loan origination fee not to exceed four percent of the first twenty thousand dollars and two percent thereafter of the principal amount of the loan advanced to or for the direct benefit of the borrower, which fee may be included in the principal balance of the loan.

It’s important to note key differences in the definitions of principal amount and principal balance. The CLA contains the following definitions:

"Principal amount" means the loan amount advanced to or for the direct benefit of the borrower.

"Principal balance" means the principal amount plus any allowable origination fee.

Licensees must ensure they are calculating the origination fee based principal amount, not the principal balance.

For additional details on fee restrictions including third party fee restrictions see:

Interest Restrictions

Under the CLA, licensees may charge an interest rate not to exceed 25% per annum determined by the simple interest method of calculating interest owed.  The simple interest method means the method of computing interest payable on a loan by applying the rate of interest specified in the note or its periodic equivalent to the unpaid balance of the principal amount outstanding for the time outstanding. Interest may not be compounded or payable in advance.

Licensees may also use the add-on method of calculating interest for a loan not secured by real property or personal property used as a residence when the repayment period does not exceed three years and fifteen days after the loan origination date. The interest rate cannot exceed 25% per annum. Under the CLA, the add-on method is defined as the method of precomputing interest payable on a loan whereby the interest to be earned is added to the principal balance and the total plus any charges allowed under this chapter is stated as the loan amount, without further provision for the payment of interest except for failure to pay according to loan terms.

When using the add-on method, licensees must provide for a refund to the borrower or a credit to the borrower's account of any unearned interest when the loan is repaid before the original maturity date in full by cash, by a new loan, by refinancing, or otherwise before the final due date. 

For additional details on interest restrictions please see:

During the examination of a licensee originating personal loans, examiners verify that borrowers have not been overcharged for loan origination fees or interest. In the event that a licensee has overcharged borrowers, the Department requires restitution be provided to those borrowers and will often require companies to look back through its loan portfolio to provide refunds to all affected Washington borrowers.