SW Legal studies in Business

States May Regulate Internet-Based Payday Loan Operations
Description

Appeals court held that the state of Kansas could make an Internet-based payday lender subject to the same licensing procedures as applied to payday lenders located physically in the state. The regulation was applied evenly to all such lenders.

Topic Cyberlaw
Key Words

Payday Loans, Internet, State Regulation, Commerce Clause

C A S E   S U M M A R Y
Facts

Quik Payday made short-term personal loans of $100 to $500. It maintained a website for its business; a loan could be processed via the web, and Quik would transfer cash to the borrower’s bank account. It operated out of Utah. About 1,000 customers in Kansas borrowed a total of about $1 million in 3,000 loans over several years. Kansas regulates consumer lending under its version of the Uniform Consumer Credit Code. It required lenders to obtain a license from Kansas banking officials before doing business in the state. Quik never did. Kansas ordered Quik to cease operations in the state, fined it $5 million, and ordered it to repay all fees and interest to customers in Kansas. Quik sued, contending Kansas could not regulate interstate banking, as it violated the Commerce Clause. The district court held for the state. Quik appealed.

Decision

Affirmed. Under the Commerce Clause, a state statute may not discriminate against interstate commerce by clearly discriminating in favor of in-state firms. The Kansas licensing procedure was the same for all payday lenders, in or out of Kansas. It was not an unreasonable burden on interstate commerce. The fact that the business was transacted over the Internet makes no difference to the application of the statute.

Citation Quik Payday, Inc. v. Stork, 549 F.3d 1302 (10th Cir., 2008)

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