Minnesota Enacts Law To License Small And Short-Term Loan Arrangers And Exempt Mortgage Originators And Servicers From Certain Licensing Requirements

Minnesota Governor Tim Walz recently approved House Bill 4188 (“HB 4188” or the “Minnesota Bill”), an omnibus bill that impacts a number of consumer financial services laws in the state. The provisions of HB 4188 that affect consumer financial services licensing will become effective August 1, 2026.

Consumer Small Loan Lending

Under Minnesota’s existing consumer small loan lending statute, “consumer small loan lenders”—which include persons engaged in the business of making unsecured “consumer small loans” of $350 or less that are scheduled to be repaid in a single payment—are subject to licensing and other substantive requirements, such as interest rate limitations. HB 4188 expands the definition of a “consumer small loan lender” to include persons engaged in the business of “arranging” consumer small loans within the scope of the licensing and substantive regulatory provisions. HB 4188 defines “arranging” a consumer small loan to include, without limitation, any substantial involvement to facilitate, market, generate leads for, underwrite, or collect a consumer small loan. Market participants that are currently engaged in activity that may fit within these new definitions should evaluate whether their activity may necessitate a license after HB 4188 takes effect.

Consumer Short-Term Loans

The Minnesota Regulated Loan Act requires a license to engage in the business of making loans of $100,000 or less with an interest rate in excess of the state’s statutory usury rate. Minnesota separately regulates certain “consumer short-term loans” under special provisions of its banking law. “Consumer short-term loans” are consumer-purpose loans that have a principal amount, or an advance on a credit limit, of $1,300 or less and requires a minimum payment within 60 days of origination or credit advance, as applicable, of more than 25% of the principal balance or credit advance. Unlike persons engaged in making “consumer small loans,” however, Minnesota’s consumer short-term loan provisions do not currently require persons making or arranging “consumer short-term loans” to obtain an incremental regulatory approval. HB 4188 amends the Minnesota Regulated Loan Act to require any person engaged in “arranging” a consumer short-term loan to obtain a license under the Regulated Loan Act. The consumer short-term loan provisions define “arranging” a consumer short-term loan to include any substantial involvement in facilitating, marketing, lead-generating, underwriting, servicing, or collecting consumer short-term loans. Market participants that currently are engaged in activity that may fit within these new definitions should evaluate whether their activity may necessitate a Regulated Loan license after HB 4188 takes effect.

Residential Mortgage Originator and Servicer Exemptions

In addition to enacting new licensing requirements for persons engaged in certain activities related to consumer short-term loans and consumer small loans, HB 4188 also codifies an exemption from licensing under the Regulated Loan Act for mortgage companies licensed as a Residential Mortgage Originator or Residential Mortgage Servicer, eliminating the possibility of duplicative licensing for mortgage lending and servicing activities regulated under Minnesota’s Residential Mortgage Originator and Servicer Licensing Act. In addition, HB 4188 also enacts an exemption from the Minnesota Collection Agencies Act and its collection agency licensing requirement for Minnesota-licensed residential mortgage servicers and student loan servicers, when those licensees are engaging in activities subject to licensing under the Minnesota Residential Mortgage Originator and Servicer Licensing Act or Minnesota Student Loan Borrower Bill of Rights Act (as applicable). Minnesota-licensed mortgage servicers and student loan servicers that also hold a Collection Agency license in Minnesota—and that do not separately engage in collection agency activity requiring a Collection Agency license—may wish to evaluate whether to maintain their Collection Agency license after HB 4188 takes effect.