WA: AFC Letter on WA PLPA Proposed Rules

October 8, 2025
Rochelle Henderson
Management Analyst
PO Box 41200
Olympia WA 98504-1200

Re: Request for Comment on Amendments to the Predatory Loan Prevention Act—WSR 25-18-022

Dear Ms. Henderson,

On behalf of the American Fintech Council (AFC) , we would like to express our thanks to the Washington Department of Financial Institution, Division of Consumer Services’ (DFI or the Department) for the opportunity to respond to the Request for Comment on Amendments to the Predatory Loan Prevention Act (PLPA)—WSR 25-07-018 (Request for Comment) in April of this year, and for the Department’s consideration of the comments AFC submitted at that time.  Having reviewed the resulting proposed rulemaking (WSR 25-18-022, the proposed rules, the rulemaking), we wish to provide additional comments.

AFC’s mission is to promote an innovative, transparent, inclusive, and customer-centric financial system by supporting the responsible growth of lending, fostering innovation in financial technology (Fintech), and encouraging sound public policy. AFC members are at the forefront of fostering competition in consumer finance and pioneering ways to better serve underserved consumer segments and geographies. Since our founding, the cornerstone of AFC’s advocacy, has been support for 36 percent rate caps at state and federal levels. A 36 percent interest rate cap is critical to maintaining a balance between responsible lending and keeping capital available for borrowers in a variety of economic circumstances.

From the start of this process, AFC has been clear about our support of the PLPA’s underlying aim: protecting Washingtonians from predatory loans. However, despite some helpful clarifications from the Department, AFC still has concerns with the PLPA’s primary enforcement mechanisms.

I. The Proposed Rules Provide Some Necessary Clarity on PLPA Enforcement; However, Additional Amendments are Needed

AFC appreciates the additional clarity the Department provided in the rulemaking. Of great importance to AFC members is the clarification that that fintech companies operating on behalf of banks partners who lend at or below 25 percent interest are exempt from the PLPA statute.  

Further, AFC is grateful for the additional clarity on the Predominant Economic Interest (PEI) and Totality of Circumstances (TOC) tests that the Department intends to apply when evaluating the “true lender” of a given loan. As passed, the PLPA established an unclear standard for which entity within a bank-fintech partnership constitutes the “true lender” of a given loan.

These novel PEI and TOC tests stand contrary to long-standing precedence finds that financial institutions, who originate the loans in a bank-fintech partnership, are in fact the “true lender.” While AFC appreciates the clarity laid forth by the Department in these criteria, we continue to disagree with the levels at which they were set. As previously noted, AFC has long advocated that the PEI test is an improper policy tool for determining the “true lender” in a bank-fintech partnership, as it does not recognize the nuances of the partnership.

AFC continues to believe that the factors constituting the TOC test should preserve that the longstanding view that the bank is the “true lender” of a loan. The “true lender” is properly identified through the terms of the loan agreement, and the entity listed upon those documents, should be the primary factor in the TOC test. Given the underlying legal tenuity of the PLPA outlined in AFC’s previous comment letter, implementing the TOC test in this manner would afford responsible fintech companies and their bank partners the opportunity to operate without issue in Washington State and mitigate the significant legal risks associated with the PLPA.

While Washington is not the only state in promulgating these tests, there is still considerable legal tenuity in their application. To date, there has been little enforcement activity from state regulators charged with implementing and enforcing “true lender” tests.  Should DFI attempt to enforce these provisions, it would likely face significant legal challenges that would nullify the PLPA, as it violates federal preemption under existing federal banking laws, which grant express preemption regarding interest rates.

To that end, AFC reiterates its request for DFI to, at a minimum, ensure that the PEI test is secondary to the TOC test, and define the PEI test in a manner that would allow bank-fintech partnerships to easily operate in a manner that fits their unique business models. For example, DFI could define “predominant” threshold as constituting 100 percent of the loan’s economic interest. Ensuring that the PEI test remains secondary to the TOC test, when properly determined, and constructing a threshold that will allow responsible bank-fintech partnerships to operate in a manner reflective of their business models will help ensure that Washington State’s lending environment does not become harmed further by the passage of the PLPA.

II. The PLPA and Proposed Rules Continue to Limit Consumers’ Access to Responsible Credit, Particularly Those in Low- and Moderate-Income Communities

Ensuring responsible access to credit for qualified consumers is of paramount importance to AFC. AFC and its members have tirelessly sought to democratize the financial services industry and improve access to credit, especially for communities who have been historically underserved or excluded by traditional financial services. As evidenced in multiple government, industry, and academic reports the availability of credit facilitated by fintech companies and their innovative bank partners have provided significant benefits to consumers, particularly those in traditionally underserved areas, such as low- and moderate-income communities.

Unfortunately, as affirmed by this recent rulemaking, the PLPA contains provisions that inherently limit responsible fintech companies and their innovative banks partners from offering loans above a 25 percent interest rate.  While some may laud the capping of allowable interest to 25 percent as  “consumer protection,” the reality is that lending in Washington State has significantly declined since the PLPA’s enactment. A survey and analysis of AFC members found that the PLPA has  already cost Washington borrowers tens of millions of dollars in consumer credit, and significantly reduced the number of loans made.

AFC recognizes the necessity of capping consumer interest rates as a tool to protect borrowers, however, as stated above, we believe that cap should be set at 36 percent. A maximum interest rate of 36 percent expands credit access to the most consumers, including those traditionally underserved by the financial services sector, while not overburdening borrowers and trapping them in a detrimental debt cycle.

Responsible bank-fintech partnerships (defined by AFC as those lending at or below 36 percent) have provided significant benefits to consumers in traditionally underserved areas, such as low- and moderate-income communities. Limiting the lending operations of AFC member companies, likely has a disproportionate impact on the very consumers the PLPA is intended to protect.

Given the substantial negative impact that the passage of the PLPA has already had on lending in Washington State, AFC respectfully requests that DFI carefully consider opportunities to amend or implement the PLPA in a manner that will restore the ability for responsible bank-fintech partnerships to offer loans at a maximum interest rate of 36 percent.

* * *

Again, AFC recognizes and appreciates the Department’s proactive engagement on the issues within the PLPA by issuing a Request for Comment in the spring of 2025. AFC continues to believe that there are several areas where amendments to the PLPA would benefit Washington State’s lending environment. The PLPA amended the CLA in significant ways that, if implemented incorrectly, could dramatically harm Washington State’s lending environment. Responsible fintech companies and their innovative banks who partner with them have already reduced lending out of an abundance of caution, severely limiting the capital available in the state.

It is our sincere hope that DFI will use the perspectives provided within this letter to craft pragmatic, effective, and efficient regulations that will help ensure responsible bank-fintech partnerships can operate in Washington State. AFC hopes for continued engagement with the DFI on how to craft regulations, guidance, and programs that encourage the development of responsible innovation through bank-fintech partnerships for the benefit of Washington consumers.

Sincerely,

Ian P. Moloney
SVP, Head of Policy and Regulatory Affairs
American Fintech Council

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[1]AFC’s membership spans technology platforms, non-bank lenders, banks, payments providers, loan servicers, credit bureaus, and personal financial management companies.
[2]American Fintech Council, "WA: AFC Letter on Request for Comment on Amendments to the Predatory Loan Prevention Act,” Apr. 16, 2025, available at https://www.fintechcouncil.org/advocacy/wa-afc-letter-on-request-for-comment-on-amendments-to-the-predatory-loan-prevention-act.
[3]WAC 208-620-236 (2)
[4]Savoie, Robert Weston, “True Lender and Rate Exportation: Reviewing the Major 2023 Legislation”, Business Law Today, American Bar Association, (Apr. 5, 2024), available at https://www.americanbar.org/groups/business_law/resources/business-law-today/2024-april/true-lender-and-rate-exportation-reviewing-the-major-2023-legislation/#:~:text=The%20laws%20typically%20establish%20several,a%20lender%20in%20another%20state.
[5]Section 85 of the National Bank Act, 12 U.S.C. § 85 and Section 27 of the Federal Deposit Insurance Act, 12 U.S.C. § 1831d.
[6]See Federal Reserve Bank of Philadelphia, Which Lenders Are More Likely to Reach Out to Underserved Consumers: Banks versus Fintechs versus Other Nonbanks, (2021), page 29, available at https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2021/wp21-17.pdf,; Federal Reserve Bank of St. Louis, Unsecured Personal Loans Get a Boost from Fintech Lenders, (2019), available at https://www.stlouisfed.org/publications/regional-economist/second-quarter-2019/unsecured-personal-loans-fintech; Federal Reserve Bank of San Francisco, Community Development Innovation Review, Fintech, Racial Equity, and an Inclusive Financial System, (2021), available at https://www.frbsf.org/wp-content/uploads/sites/3/fintech-racial-equity-inclusive-financial-system.pdf. See also, U.S. Department of the Treasury, Impact of New Entrant Non-Bank Firms on Competition in Consumer Finance Markets, (2022), pages 75-79, available at https://home.treasury.gov/news/press-releases/jy1105.  
[7] Per DFI guidance, “[l]icensees are permitted to make a loan “at a rate that does not exceed twenty-five percent per annum as determined by the simple interest method of calculating interest owed.”’ Washington Department of Financial Institutions, “Consumer Loan Act: Interim Guidance, CLA-24-02”, (Dec. 13, 2024), available at https://dfi.wa.gov/sites/default/files/cla-24-02-dec-13-24.pdf. RCW 31.04.105(1).

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