Colorado Requires Home Equity Investment Company To Comply With State Consumer Lending Laws

On June 24, the Colorado AG announced that a home equity investment company entered into an Assurance of Discontinuance regarding its home equity investment products. The Attorney General alleged that the company's home equity investment products violated the Colorado Uniform Consumer Credit Code (UCCC) and the Colorado Consumer Equity Protection Act.

The AG alleged that the company marketed its products as home equity agreements under which consumers received a lump-sum payment in exchange for a percentage interest in their home’s future value, whether the home’s value increased or decreased. According to the AG, these agreements were consumer credit transactions subject to the UCCC’s finance charge limitations, disclosure requirements, and licensing obligations. Specifically, the settlement requires the company to:

• Comply with Colorado lending laws. The company must treat covered home equity agreements as subject to the UCCC and CEPA, including Colorado’s finance charge limitations.
• Revise consumer disclosures. Future disclosures must state that the total loan finance charges on covered transactions are governed by the Colorado UCCC and may not exceed the amounts permitted under Colorado law.
• Obtain required licenses. Before resuming operations in Colorado, the company must obtain all licenses required under the UCCC, including a supervised lender license.

The settlement also requires the company to provide restitution to Colorado consumers whose settled agreements exceeded Colorado’s finance charge limitations. As of the settlement date, the company identified approximately $390,783 in restitution owed to 167 consumers, with additional payments required as outstanding agreements mature. The settlement also requires quarterly restitution reports, a potential follow-up compliance examination, and a $37,500 payment to the Colorado Attorney General’s Office.

Putting It Into Practice: State enforcement activity remains active across the consumer financial services industry, with state regulators continuing to apply existing consumer protection and lending laws to both traditional and emerging financial products (previously discussed here, here, and here). Companies offering home equity investment products should evaluate whether their programs trigger state consumer lending requirements, including licensing, disclosure, and pricing obligations.