SW Legal studies in Business

Discounted Tax Refund Is Usurious Loan in Violation of Uniform Consumer Credit Code
Description Colorado's high court held that when consumers sell the right for a tax refund, for about fifty cents on the dollar to be received, that the transaction is a loan subject to usury in violation of the Uniform Consumer Credit Code.
Topic Consumer Protection
Key Words Credit; Usury
C A S E   S U M M A R Y
Facts Cash Now contracts with individuals to pay them an immediate sum of money in return for an assignment of the individual's right to receive federal or state tax refunds that have been determined to be due, but which are not yet payable. The amount paid by Cash Now is usually 50-60% less than the face value of the anticipated tax refund; if the refund is less than the amount expected, the individual owes Cash Now for the difference. The Colorado Administrator of the Uniform Consumer Credit Code (UCCC) contended that the arrangement violated the UCCC restrictions on usury in consumer loans and the practice should be enjoined. The trial court held that the transactions were purchases by Cash Now, not loans, and denied the Administrator's motion. She appealed.
Decision

Reversed. The UCCC, which regulates small loans, consumer credit and usury, is intended to be liberally construed to promote its underlying purposes and policies, which include protecting consumer borrowers against unfair practices by some suppliers of consumer credit. The transactions here were loans subject to the UCCC, even though the only consumers who had to make a payment were those who received a smaller-than-expected refund. The transactions were almost all for less than $25,000 and, rather than calling the difference in the amount paid and the tax refund received interest on a loan, it was a discount on the money paid, which is the equivalent of a high interest rate loan. An injunction against the practice may be granted.

Citation State of Colorado v. The Cash Now Store, Inc., 31 P.2d 161 (Sup. Ct., Colo., 2001)

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