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Consumer Credit Regulation: 7.7.8.2.1 General requirements to attain the rights of a holder in due course

The common law rule is that an assignee is subject to all defenses and claims in recoupment that the consumer could raise against the assignor.618 But section 3-305 of the Uniform Commercial Code (UCC) generally allows an assignee of a promissory note or other negotiable instrument to be free from those claims and defenses if it has attained the status of a holder in due course or acquired the rights of a holder in due course.619

Consumer Credit Regulation: 7.7.8.2.2 No holder-in-due-course rights where note contains FTC Holder Notice

There can be no holder-in-due-course status when the credit agreement contains the FTC Holder Notice since that notice is inconsistent with holder-in-due-course status. UCC Article 3 states that when the notice is in the contract “there cannot be a holder in due course of [such an] instrument.”634 Since the notice is in the note from the origination, no holder obtains holder-in-due-course rights, so no subsequent holder can acquire the rights via the shelter rule.

Consumer Credit Regulation: 7.7.8.2.4 No holder in due course rights unless the note’s amount and due date are fixed

If a loan is not a negotiable instrument, then no holder of that instrument can become a holder in due course. A negotiable instrument must contain a promise to pay a fixed amount of money.645 Consequently, there can be no holder in due course relating to any open-end credit obligation. The amount of principal owed on open-end credit is unknown at the time the loan is originated and the amount changes over time.

Consumer Credit Regulation: 7.7.8.2.6 Sloppy transfer of a note

For an entity to become a holder in due course, it must be a “holder” of a negotiable instrument, meaning that the instrument must be negotiated to that entity. If the instrument is not negotiated properly, then the party seeking to enforce the instrument is not in fact a holder of the instrument. Often, due to sloppy paperwork, negotiation does not take place or the assignee cannot prove that it properly took place, and thus the assignee is not a holder or a holder in due course.

Consumer Credit Regulation: 11.3.4.2 Limits on Term and Payment Schedule

A few RISAs provide a limit on the term of an installment sales contract.91 More common are restrictions on irregular payments. Many RISAs require that the obligation be repayable in substantially equal installments except in limited circumstances. A requirement of substantially equal installments effectively bans balloon payments. Many RISAs also require that the payments be spaced out at equal intervals. Most of these laws allow the schedule of payments to be adjusted to the seasonal or irregular income of the debtor.

Consumer Credit Regulation: 14.5 Settlements or Judgments (“Factoring”)

Tort or other legal settlements are often structured to provide payment over a period of years.96 Beneficiaries of structured settlements—who may be financially desperate or impaired by their injuries—are vulnerable to predatory transactions whereby they sell, assign, or pledge a large number of future payments in return for upfront cash.97 Challenging these transactions as loans may be tricky, especially in states that have a statuto

Consumer Credit Regulation: 9.3.23 Massachusetts

Massachusetts law prohibits engaging in the business of making small loans unless licensed under the state’s small loan law.324 The Small Loan Act prescribes a rate cap of 23% per year and allows an administrative fee of $20, which cannot be assessed more than once during any twelve-month period.325 The rate cap effectively prohibits payday lending in Massachusetts.

Consumer Credit Regulation: 9.3.24 Michigan

Payday lending is authorized in Michigan by the Deferred Presentment Service Transactions Act.329 A payday loan lender may not make more than one loan at a time to a particular borrower and may not make a loan to a borrower if that borrower already has more than one outstanding payday loan in effect with any lender.330 A lender is not allowed to renew a loan; however, a lender may extend a loan as long as no fee is charged for that extension, and the balance owed is equal to the amount owed on t

Consumer Credit Regulation: 9.3.25 Minnesota

Minnesota has two statutes authorizing payday lending. The first, Minn. Stat. § 47.60, authorizes loans of $350 or less, repayable in no more than thirty days.335 These are termed “consumer small loans.” It allows the lender to charge $5.50 on any amount up to $50.

Consumer Credit Regulation: 9.3.26 Mississippi

The Mississippi Check Cashers Act351 authorizes payday lending. While this statute was previously scheduled to sunset in 2012, the date of repeal was extended by amendments enacted in 2011 until July 1, 2015. However, with the reenactment of the Check Cashers Act in 2013, the repealing language was deleted.352

Consumer Credit Regulation: 9.3.27 Missouri

Missouri law authorizes payday lending.361 A lender may make a payday loan of up to $500,362 but may not have more than that aggregate amount in loans outstanding to the same borrower at any one time.363 A lender is permitted to make up to six renewals of a payday loan and the finance charge is capped at 75% of the loan.

Consumer Credit Regulation: 9.3.28 Montana

Payday lending is authorized in Montana under the Deferred Deposit Loan Act367 but, due to a 36% annual rate cap,368 it is effectively prohibited. The statute contains other restrictions on lenders as well.

Consumer Credit Regulation: 9.3.29 Nebraska

Payday lending is technically legal in Nebraska under the Delayed Deposit Services Licensing Act,380 but a successful 2020 ballot initiative limited annual percentage rates to 36%.381 A lender may not hold more than two checks from a borrower at one time.

Consumer Credit Regulation: 9.3.31 New Hampshire

Payday lending is technically legal in New Hampshire but has been eliminated by a 36% rate cap.410 The statute provides that a lender may not loan more than $500 to a given borrower,411 and a lender may not make more than one loan at any time “for the purpose of increasing charges.”412 Additionally, a lender is not permitted to make a loan to a borrower who currently has, or has had within the previous sixty-day period, an outstanding payday or tit

Consumer Credit Regulation: 9.3.32 New Jersey

In New Jersey, a licensed check casher may not cash or advance money on a postdated check.420 This limitation in and of itself does not prohibit payday loans in New Jersey, as lenders may still conceivably make loans in the state pursuant to the Consumer Loan Act.

Consumer Credit Regulation: 9.3.33 New Mexico

Payday lending used to be authorized by statute in New Mexico, but in 2017 the legislature enacted small loan law reforms that effectively eliminated short-term payday loans.424 The amendments, which became effective on January 1, 2018, limit the maximum finance charges on all installment loans under $5,000 to an annual percentage rate of 175%.425 An installment loan is defined as one that is to be repaid in a minimum of four substantially equal payments of principal and interest with an initial

Consumer Credit Regulation: 9.3.34 New York

In New York, an individual licensed as a check casher may not make loans or cash or advance any moneys on a post-dated check unless it is a government check or payroll check.436 While a lender could conceivably make payday loans under the Licensed Lender law, which allows any interest rate agreed to by the parties, New York’s criminal usury cap of 25%437 effectively prohibits payday lending in the state. Usurious loans are void in New York.438

Consumer Credit Regulation: 9.3.35 North Carolina

In 2001, laws authorizing payday lending in North Carolina were allowed to sunset.441 The loans that were formerly covered under the statute now fall under the state’s consumer finance act, which sets an interest rate schedule: for loans not more than $10,000, 30% per annum on the unpaid principal balance not greater than $4,000, 24% per annum on unpaid principal balance more than $4,000 but not more than $8,000, and 18% per annum on unpaid principal balance.

Consumer Credit Regulation: 9.3.37 Ohio

The laws governing payday lending in Ohio were revamped in 2018. Payday lending is now permitted under the Short-Term Lender Act (STLA).454 The Act allows for loans of up to $1,000 with a maximum term of twelve months.

Consumer Credit Regulation: 9.3.38 Oklahoma

Oklahoma repealed its payday lending statute effective August 1, 2020.472 Until then, payday lending was legal in Oklahoma under the Deferred Deposit Lending Act.473 According to the Act, a lender was restricted from making a loan for more than $500,474 and could not make a loan if the borrower had more than one outsta

Consumer Credit Regulation: 9.3.39 Oregon

Payday lending is legal in Oregon.483 The law specifies a maximum loan limit of $50,000484 and a maximum interest rate of 36%, excluding a one-time origination fee for a loan.485 The law also states that a lender may not grant more than two renewals,486 and must comply with a cooling-off period of seven days after the date on which a consumer fully repays the previous payday loan before making a new p