Washington State

Office of the Attorney General

Attorney General

Bob Ferguson

AGO 1951 No. 445 -
Attorney General Smith Troy


Maximum "charge" authorized by act is an aggregate of all charges permitted by licensed and non-licensed [[nonlicensed]]lenders; prosecuting attorneys have jurisdiction of criminal violations; procedure for enforcement of Act; non-licensed [[nonlicensed]]lenders not subject to charge for expense of examinations.

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                                                                 February 7, 1951

Honorable J. C. Minshull
Supervisor of Banking
Division of Banking
Olympia, Washington                                                                                              Cite as:  AGO 49-51 No. 445

Dear Sir:

            By letter of December 27, 1950, you request our opinion as to the scope of your enforcement powers and authority under the Washington Small Loan Act, chapter 208, Laws of 1941 (8771-1 et seq. Rem. Supp. 1941) and make the following specific inquiries:

            1. Is our Small Loan Act regarded as truly "uniform legislation" and will the Washington courts feel bound to follow the decisions of the courts of other states in construing similar provisions of comparable acts?

            2. Should charges for insurance, filing fees, notary fees, investigation or appraisal fees, credit reports, etc., made by the lender against the borrower in addition to interest, be considered as "interest" in determining whether or not a note is for a usurious loan?

            3. Will our courts follow the rule of other jurisdictions that the maximum "charge" permitted by the Small Loan Act is intended to be inclusive of allcharges permitted for all other services rendered in connection with the granting of small loans and what effect will such decisions have on the nonlicensed lender?

             [[Orig. Op. Page 2]]

            4. "In the event violations of the Act are discovered, should such acts be reported to the prosecuting attorney of the county wherein the violation has occurred, or should the matter be presented to the office of the Attorney General?  If referred to the office of the Attorney General without having been referred to the office of the county prosecutor, is it within the power of your office to initiate proceedings in the several counties?"

            5. "In the event demand is made by a representative of the office of the Supervisor of Banking that any person submit his books and records for examination for the purpose of discovering or disclosing any violations of the Small Loan Act, and if such demand is refused, what procedures may such representative of the Supervisor follow in order to enforce compliance with his demands?"

            6. "When an examination of a non-licensee [[nonlicensee]]has been made, may the cost of such examination be collected from the person examined?"

            Our conclusions may be summarized as follows:

            1. The Small Loan Act, chapter 208, Laws of 1941, (8371-1 et seq., Rem. Supp. 1941) is not regarded as "uniform legislation" in the sense that that term is used with respect to the Uniform Acts promulgated by the National Conference of Commissioners on Uniform State Laws.  However, as is always true, our courts would definitely be influenced by the decisions of other jurisdictions supporting the weight of authority as to the construction of the same or similar provisions of comparable acts.

            2. The maximum "charge" authorized under section 13 of the Act (8371-13 Rem. Supp. 1941) is an aggregate of all charges, whether for interest or otherwise, which a licensee may exact from a borrower.  This limitation also applies to non-licensed [[nonlicensed]]lenders.

            3. Violations as to which it is sought to invoke the criminal penalties of the Act should be reported and presented to the prosecuting attorney of the county in which such violations occur.

            4. The Supervisor of Banking may issue and serve orders or demands upon persons engaged in business covered by the Act.  Depending upon the circumstances of each case, proceedings may be instituted to obtain the aid of the courts in the enforcement of the Supervisor's power of investigation.

             [[Orig. Op. Page 3]]

            5. A non-licensee [[nonlicensee]]may not be charged with the cost of examinations and investigations made by the Supervisor.


            1. The term "uniform laws" or "uniform legislation" is generally used with reference to "Uniform Acts" promulgated by the "National Conference of Commissioners on Uniform State Laws" (a body of commissioners deriving their authority from appointment by the governors of their respective states) and recommended to the states for adoption.  Such Uniform Acts are not always enacted in identical form and the decisions of the courts of the different states are not always in harmony in the construction and interpretation of identical or similar provisions.  Although such legislation is basically uniform, it is doubtful if there is any legislation which is "truly uniform" as suggested by your inquiry.

            The Washington Small Loan Act as enacted in 1941, although never adopted as one of the Uniform Acts, is patterned upon and adopts the cardinal principles and provisions of the sixth draft of the "Uniform Small Loan Law" proposed by the Russell Sage Foundation.  Kelleher v. Minshull, 11 Wn. (2d) 380, 382.  The Act as proposed by the Russell Sage Foundation is merely a model, but most small loan legislation since 1916 has, in general, followed the draft current at the time of its enactment.  See note 1, "The Development of Regulatory Small Loan Laws" by F. B. Hubachek, appearing in 8 Law and Contemporary Problems, 108, 109 (1941) published by Duke University School of Law.  However, as is always the case whether so-called "uniform legislation" is involved or not, the well considered decisions from other jurisdictions involving small loan laws would undoubtedly have a decided influence on our courts in their application and interpretation of identical or similar provisions of our Small Loan Act.  This is effectively demonstrated in the Kelleher case, supra.

            2. Article 13 of the Small Loan Act (8371-13 Rem. Supp. 1941) provides, in part, that "(a) Every licensee hereunder may lend any sum of money not to exceed five hundred dollars ($500.00) in amount and may charge, contract for and receivecharges at a rate not exceeding * * *" specified percentages of unpaid principal balances.  (Emphasis supplied).

            This provision of the Act makes the rate of "charges" therein specified the maximum of the aggregate of all charges which a licensee may exact of the borrower.  Equity Service Corp. v. Agull, 250 App. Div. 96, 293 N.W. Supp. page 72.  And see "Annotations on Small Loan Laws" by F. B. Hubachek (1938) published by Russell Sage Foundation at page 87.

             [[Orig. Op. Page 4]]

            Section 2 of our Small Loan Act (8371-2 Rem. Supp. 1941) describes the business covered by the Act as the making of loans "* * * in the amount or of the value of five hundred dollars ($500.00) or less * * *" and provides that no person shall engage in such business and charge a greater rate ofinterest "* * * than the lender would be permitted by law to charge if hewere not licensed hereunder except as authorized by the Act and without first obtaining a license from the Supervisor."  (Emphasis ours).

            Under the provisions of section 2 of the Act, it would appear that a nonlicensee may charge interest at the maximum rate of twelve per cent per annum as permitted under the General Statute, Rem. Rev. Stat. 7300.  In addition to interest at the rate of twelve per cent per annum, a non-licensed lender may exact of the borrower reasonable charges for bona fide additional services rendered in good faith for the borrower, where such charges are not used as a subterfuge for the purpose of increasing the rate of interest for the use of the money loaned.  Hafer v. Spaeth, 22 Wn. (2d) 378, 390.  However, under section 17 of the Act (8371-17 Rem. Supp. 1941), the total "charges" of all loans for five hundred dollars ($500.00) or less, are limited to the rate of "charges" allowed licensees by section 13.  We are of the opinion that these provisions of section 17 apply to loans made by non-licensed [[nonlicensed]]as well as licensed lenders.  Hafer v. Spaeth, supra.  Under this interpretation, the total of all "charges" which can be made by a non-licensee [[nonlicensee]], including interest and permissive bona fide fees and expenses for additional services, may not, in any event, exceed the maximum rate of "charges" allowed a licensee.  We are, therefore, of the opinion that section 13 of the Act places a maximum total, at the rates therein set forth, upon the aggregate of all charges, interest or otherwise, which a licensee or non-licensee [[nonlicensee]]may exact of a borrower of the sum of five hundred dollars ($500.00) or less; that a non-licensed [[nonlicensed]]lender may charge interest up to twelve per cent per annum, together with reasonable charges for bona fide additional services rendered in good faith for the borrower, in a combined total not to exceed the maximum rate of "charges" allowed by section 13.

            3. Your question 3 is covered by the preceding discussion.

            4. We understand your fourth inquiry to relate to proposed criminal proceedings under section 18 of the Small Loan Act (8371-18 Rem. Supp. 1941) which makes violations of sections 2, 12, 13, 14 or 17 a gross misdemeanor.  The prosecuting attorneys of the various counties have the authority and duty to institute criminal proceedings as to offenses committed in their respective counties.  The Attorney General has no authority to institute criminal proceedings, except upon written request of the Governor and pursuant to  [[Orig. Op. Page 5]] chapter 88, Laws of 1937 (Rem. Rev. Stat. Supp. 112-1).  The provisions of this Act have been invoked in only one instance.  Occasionally at the request of a county prosecutor, the Attorney General assists in the trial of a criminal action as authorized by Rem. Rev. Stat., section 112.

            You are therefore advised that in the event of violations of the Small Loan Act as to which the criminal penalties of section 18 of the Act are to be invoked, such violations should be referred and presented to the prosecuting attorneys of the counties in which the offenses have been committed.

            5.  The material portion of section 10 of the Act (8371-10 Rem. Supp. 1941) is as follows:

            "For the purpose of discovering violations of this Act or securing information lawfully required by him hereunder, the Supervisor may at any time, either personally or by a person or persons duly designated by him, investigate the loans and business and examine the books, accounts, records, and files used therein, of every licenseeand of every person who shall be engaged in thebusiness described in section 2 of this Act,whether such person shall act or claim to act as principal or agent, or under or without the authority of this Act.  For that purpose the Supervisor and his duly designated representatives shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of all such persons.  The Supervisor and all persons duly designated by him shall have authority to require the attendance of and to examine under oath all persons whomsoever whose testimony he may require relative to such loans or such business or to the subject matter of any examination, investigation or hearing.  The Supervisor shall make such an examination of the affairs, business, office and records of each licensee at least once each year.  The actualcost of every examination shall be paid to the Supervisor by every licensee so examined: * * *" (Emphasis supplied).

             [[Orig. Op. Page 6]]

            In discussing the provisions of this section our Supreme Court in theKelleher case,supra, said:

            "We deem the provisions of § 10 of the small loan act not only reasonable, but absolutely essential to the proper enforcement of the act.  It does not permit seizure of any sort, nor the invasion of the person's home, nor even an indiscriminate search into his private affairs, but simply authorizes access to the office and place of business of the individual and permits an examination of the books, accounts, and records pertaining to the small loan business conducted by him."

            There would seem to be little difficulty in the enforcement of the Supervisor's powers of investigation and examination of licensees, particularly in view of the power of revocation and suspension of licenses given under section 9 of the Act (8371-9 Rem. Supp. 1941).  As to non-licensees [[nonlicensees]], the selection of the most practical procedure to compel submission to the Supervisor's visitatorial and investigative authority presents a more difficult problem.  The course to be followed in the event a non-licensed [[nonlicensed]]lender engaged in the business covered by the Act refuses to allow the Supervisor to fully exercise his powers in this regard will, of course, depend upon the factual situation in each instance.  Under section 20 of the Act (8371-20 Rem. Supp. 1941), in addition to the power to make rules and regulations, the Supervisor is authorized to make specific orders and demands for the purpose of enforcing the Act.  Upon failure of any person to respond to the Supervisor's informal request to submit to an examination, the Supervisor could properly make and serve a specific order or demand upon such person.  Upon noncompliance with such order or demand, the Supervisor could then set a time and place for a hearing and by the issuance of subpoenas invoke his authority to compel the attendance of witnesses and their examination under oath.  In the exercise of this authority we believe the Supervisor would have power to order the production of books, accounts, papers, etc.

            If there was then a continued failure to comply with the orders and directives of the Supervisor, it would be necessary to seek the aid of the courts to obtain effective enforcement of the powers and authority given to the Supervisor under the Act.  This could be in the form of criminal or contempt proceedings, injunctive relief or through various other procedures provided by law.  It is impossible to anticipate the numerous variations of factual  [[Orig. Op. Page 7]] and surrounding circumstances which might arise in each particular case.  Each case would require careful investigation and study before attempting to develop a method of procedure.  This is especially true in the absence of prior Washington cases under section 10 of our Small Loan Act.

            6. Although section 10 of the Act makes provision for payment by a licensee of the cost of the Supervisor's examination of such licensee, there is no corresponding provision relating to the cost of the examination of a nonlicensed lender.  In the absence of any such statutory authority the Supervisor has no basis for charging the expense of examining or investigating a non-licensee [[nonlicensee]].

            Referring generally to the efficacy of the Supervisor's power and authority as to non-licensed [[nonlicensed]]lenders, it is apparent that the active cooperation of the licensed operators will be a vital factor in the success of any program of enforcement.  In speaking of non-licensed [[nonlicensed]]violators Hubachek in his article "The Development of Regulatory Small Loan Laws," supra, says:

            "* * * They go out because they are discovered by licensees who set in motion the machinery of the small loan law.  The licensees have an investment to protect.  They become detective, policeman, and prosecutor.  That is an important function of competition in eliminating loan sharks."

            We are aware of the fact that Washington licensees have accorded the Supervisor an unusually high degree of cooperation.  Such cooperation should be of invaluable assistance in securing the evidence necessary to establish violations of the Act.

Very truly yours,

Attorney General

tlAssistant Attorney General