A Ballard Spahr client recently bucked the trend of states asserting jurisdiction over out-of-state credit transactions. On March 24, 2009, the U.S. District Court for the Southern District of Indiana enjoined enforcement of the Indiana Uniform Consumer Credit Code against (UCCC) Midwest Title Loans, which has no offices or employees in Indiana.

In Midwest Title Loans v. Judith Ripley, the court drew on U.S. Supreme Court and Fourth and Seventh Circuits rulings in holding that Indiana's attempt to apply its UCCC to loans consummated outside the state violated the Commerce Clause of the U.S. Constitution. Quoting a decision from the Third Circuit, the court observed that "citizens do not carry their home state's laws with them wherever they go."

Midwest Title made loans to Indiana residents, in person, in Illinois. It also mailed annual solicitations to former Indiana customers, advertised on Indiana TV stations and Chicago stations reaching Indiana residents, and appeared in Indiana Yellow Page listings. The Indiana Department of Financial Institutions demanded that Midwest cease this activity, based on the state's expanded UCCC. Midwest sued the DFI in federal court, arguing that the Commerce Clause prevented the extra-territorial regulation contemplated by the Indiana UCCC.

The court distinguished the decision in Quik Payday Inc. v. Stork, where the 10th Circuit applied Kansas law to Internet loans made to Kansas residents by an out-of-state lender, because the borrowers in Quik Payday did not travel to another state to get their loans.

Both the Indiana and Kansas UCCCs were recently amended to provide that a loan is deemed to be made "in" the state, and hence subject to regulation, if the loan involves a state resident solicited in the state by any means. These rules apply regardless of where the closing takes place.  Officials in the District of Columbia, Oregon, and North Carolina have all taken actions against out-of-state lenders, seeking to enforce local laws with respect to loans to local residents consummated elsewhere.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs); its guidance in structuring and documentation of new consumer financial services products; and its significant experience with the full range of federal and state consumer credit laws throughout the country.  It has represented a number of lenders confronting state efforts to enforce their laws on an extra-territorial basis. For further information, please contact Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; John L. Culhane, Jr., 215.864.8535 or culhane@ballardspahr.com; or Barbara Mishkin, 215.864.8528 or mishkinb@ballardspahr.com.


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