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Consumer Financial Services Alert
Massachusetts Division of Banks Issues Warning Letter to Debt Collectors

The Massachusetts Division of Banks issued a warning letter to remind licensed debt collectors that it is illegal to collect on small loans made in violation of Massachusetts’ small loan law. The letter notes that a license is required to make loans of $6,000 or less with interest and expenses in excess of 12% annually in Massachusetts. Further, under Massachusetts law, interest on small loans is capped at 23%. The letter noted that small loans originated or purchased by unlicensed entities or small loans with rates and fees that exceed those permitted by law are void and any attempt to collect on debt that is void or unenforceable violates state and federal law. The Division also highlighted that "it has a history of taking actions to address illegal lending activities" in Massachusetts and pointed to its cease and desist orders against payday lending companies making illegal loans to Massachusetts consumers. The Division also noted that "[a]ny [l]icensee that engages in unfair or deceptive acts and practices by collecting consumer debt on behalf of companies which make illegal loans to Massachusetts consumers will be subject to public enforcement action and will be required to refund all fees collected." The New York Department of Financial Services has issued a similar warning letter to debt collectors (see March 5, 2013 Alert).

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