Compliance with Washington Lender Laws

The new licensing requirements laid out in RCW 31.04.035 may impact your loan-related activities. If you are lending money in Washington State it is imperative to understand these regulations and ensure compliance to avoid potential legal and regulatory issues that may affect your business. 

Overview of RCW 31.04.035

As stipulated by RCW 31.04.035, no person or entity may engage in making secured or unsecured loans, extending credit, servicing or modifying residential mortgage loans, or servicing or modifying student education loans without first obtaining the appropriate license.  

There are, however, several exemptions to this requirement: 

Key Exemptions to Consider 

The law does not apply to entities involved in: 

• Banking, savings banks, trust companies, savings and loan associations, or credit unions. 

• Pawnbroking and secondhand dealing. 

• Retail credit (with specific conditions). 

• Check cashing and selling. 

• Business, commercial, or agricultural loans not secured by the borrower's primary dwelling. 

• Seller financing under specific conditions. 

• Loans to or from government entities or programs. 

• Nonprofit housing organizations. 

• Loans under non-residential mortgage credit card plans. 

• Employees of licensed residential mortgage loan servicing companies. 

• Entities processing payments on seller-financed loans secured by liens. 

Steps for Compliance 

1. Evaluate Your Activities: 

• Assess whether your LLC’s operations involve activities such as making loans, extending credit, or servicing/modifying loans. 

• Determine if these activities fall under any of the exemptions mentioned above.

2. Licensing Requirements: 

• If your activities do not fall under an exemption, you must obtain and maintain the required license. 

• For exempt activities, ensure thorough documentation to support your exemption claim. 

3. Business Purpose Affidavit: 

• Utilize a Business Purpose Affidavit for loans made for business purposes. 

• The affidavit should explicitly state that the loan is for business purposes only and is not secured by the borrower’s primary dwelling. 

Practical Implications and Recommendations 

1. Due Diligence: 

• Conduct comprehensive reviews of your loan-related activities to ensure compliance. 

• Regularly update your policies and documentation. 

2. Legal Consultation: 

• Engage with legal advisors to navigate the complexities and ambiguities of these regulations. 

3. Record Keeping: 

• Maintain meticulous records of all loan transactions and supporting documentation to demonstrate compliance or valid exemptions. 

Conclusion 

LLCs engaged in loan-related activities must carefully assess their operations against the new licensing requirements under RCW 31.04.035. Understanding the detailed exemptions provided by WAC 208-620-104 and RCW 31.04.025 is critical. By diligently evaluating their activities, leveraging business purpose affidavits, and maintaining comprehensive records, LLCs can ensure compliance and avoid potential regulatory issues. By understanding and adhering to these new licensing requirements, your LLC can continue its operations without legal complications. Please feel free to reach out to the team at Holmquist + Gardiner | Real Estate Lawyer in Seattle, Washington if you have any questions or need further clarification or assistance in navigating these regulations.