By the Division of Banks
April 8, 2013
To All Licensed Debt Collectors:
The purpose of this industry letter is to advise all entities and persons collecting debt from Massachusetts residents that it is illegal to collect on consumer loans which violate the Massachusetts small loan statute. Massachusetts General Laws 140, sections 96 through 114A requires entities to be licensed by the Division of Banks (Division) if they are engaged, directly or indirectly, in the business of making loans of $6,000 or less and the interest and expenses paid on the loan exceed in the aggregate 12% annually. Regulation 209 CMR 26.00 et seq. limits the annual interest rate that can be charged on small loans to 23%. Further, small loans originated or purchased by unlicensed entities, or small loans with rates and fees that exceed the limits established by the law, are void pursuant to the provisions of Massachusetts General Laws chapter 140, section 110. Any attempt to collect on debt that is void or unenforceable is illegal.
It is the responsibility of licensed debt collectors (Licensees) to ensure that they do not facilitate the creation or collection of illegal loans. The Division urges Licensees to review all client contracts and debtor accounts to ensure that all consumer, compliance, and reputational risks are appropriately evaluated and addressed on an ongoing basis.
Last week, the Division issued cease and desist orders to five unlicensed predatory lenders and a licensed debt collector which misrepresented to Massachusetts consumers that the debt it was attempting to collect on was enforceable and collectable. Those orders may be found on the Division’s website at www.mass.gov/dob, by clicking on ‘Enforcement Actions’ under ‘Legal Services.’
The Division has a history of taking actions to address illegal lending activities in the Commonwealth. In a series of initiatives against payday lending dating back to 2005, the Division has issued cease activity orders against hundreds of payday lending companies making illegal loans to Massachusetts consumers, many operating online. For further detail, please visit the Division’s website at www.mass.gov/dob, and click on ‘Payday Loans’ under ‘Key Initiatives.’
The Division will continue to aggressively enforce the law to protect all Massachusetts consumers from abuse by predatory lenders and debt collectors. Any Licensee that engages in unfair or deceptive acts and practices by collecting consumer debt on behalf of companies which make illegal loans to Massachusetts consumers will be subject to public enforcement action and will be required to refund all fees collected.
Should have any questions or concerns with the content of this letter, please contact Deputy Commissioner Tiffany Fowlie at (617) 956-1549.
David J. Cotney
Commissioner of Banks