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1.5.5 Finance Companies and Other Licensed Lenders

Licensed lenders are corporations or individuals who have received a state license to issue consumer credit, frequently at high interest rates, under one or more of the numerous state special usury statutes. For example, small loan laws, industrial bank laws, and pawnbroker statutes generally require that a creditor receive a state license and comply with state regulations in order to lend at the generous rates that these statutes usually authorize. Creditors that purport to operate under a special usury statute but fail to obtain the proper license may face serious penalties for violations of the state’s general usury law.176

Probably the most common example of a licensed lender in the past was the consumer finance company. These companies, the descendants of small loan lenders, have, in many cases, expanded their operations to include a more middle-class consumer market.177 Many finance companies made substantial profits through the cross-selling of credit insurance and other services in conjunction with their loans, through the repeated refinancing of outstanding consumer debt, and through questionable extensions of credit to insolvent borrowers on over-secured loans.

Consumer finance companies have been somewhat eclipsed in recent years by payday lenders and auto title lenders. Some states ban these forms of high-cost lending, but others authorize them, usually requiring licensure but often imposing only ineffective substantive regulation.178

Although some states required licensing for second mortgage lenders, first mortgage lenders that were not depository institutions were historically not licensed lenders. As previously unregulated mortgage companies became the source of some abusive lending practices in the 1980s, some states added these to the list of lenders subject to licensing and regulation.179 The federal SAFE Act of 2008180 requires individual mortgage loan brokers to be licensed, but whether mortgage lenders themselves must be licensed is still a question of state law.


  • 176 {176} See § 7.8, infra.

  • 177 {177} See Lynn Drysdale & Kathleen Keest, The Two-Tiered Consumer Financial Services Marketplace: The Fringe Banking System and Its Challenge to Current Thinking About the Socio-Economic Role of Usury Laws in Today’s Society, 51 S.C. L. Rev. 589 (2000).

  • 178 {178} See Ch. 9, infra (payday lending); Ch. 12, infra (auto title pawn); Ch. 13, infra (rent-to-own).

  • 179 {179} See, e.g., Mass. Gen. Laws ch. 255E (Licensing of Certain Mortgage Lenders and Brokers) (enacted 1991).

  • 180 {180} See National Consumer Law Center, Mortgage Lending § 3.3 (3d ed. 2019), updated at