ACE Cash Express, Inc. and the Colorado Attorney General reached a settlement under which ACE will terminate its relationship with Goleta National Bank with regard to its Colorado program. ACE also agreed to obtain a supervised lender license and comply with Colorado’s payday lending laws. ACE will pay $1.3 million to certain borrowers in Colorado but will pay no fines. ACE made no admission of any wrong‑doing.

    The Colorado Attorney General brought suit against ACE, the in‑state Colorado agent of Goleta National Bank, an out‑of‑state bank located in California, alleging that ACE violated state lending laws on the theory that the agent and not the bank was the lender. ACE removed the case to federal court based on the National Bank Act and the doctrine of complete preemption. In March the federal court remanded the case to state court on the basis that ACE is not a national bank and the complaint did not evoke the National Bank Act. The OCC filed an amicus in federal court favoring remand.

    In a similar case, the United States District Court for the Southern District of Indiana granted defendant ACE’s motion to dismiss for failure to state a claim. The Indiana federal district court found that based on the pleadings, including the document referenced in the complaint and attached to the defendant’s motion, Goleta made the loan. Thus, the court stated that Section 85 controlled and the complaint failed to state a claim upon which relief can be granted.

    The United States District Court for the Eastern District of North Carolina denied a motion to dismiss filed by ACE in a similar case. The court stated that the transaction was not protected by the National Bank Act if the payday lender was proven to be the real creditor.

    Various similar claims have been made against payday lenders in other states by regulators and plaintiffs. This and related litigation may establish precedents that could have far ranging effects for the financial services industry, impacting a variety of dealer‑assisted and agent‑originated loan and sales credit programs and even common securitization structures.

    If you would like more information, a copy of a decision or advice on the legal issues raised by these cases and strategies for addressing challenges, please contact Elizabeth Anstaett at (614) 628‑1604 or [email protected].