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Colorado v. Marlette
Colorado v. Marlette
DISTRICT COURT, CITY AND COUNTY OF
DENVER, COLORADO !
1437 Bannock Street
Denver, Colorado 80202
JULIE ANN MEADE, ADMINISTRATOR,
UNIFORM CONSUMER CREDIT CODE,
Plaintiff,
v.
I. PARTIES
4. Per the About page of its website (Exhibit A), Marlette is a self-
described specialty finance company formed in 2013.
6. The Best Egg Loans are loans that are made or arranged by a business
entity that is regularly engaged in the business of making loans.
7. Consumers can apply for and obtain Best Egg Loans via a website that is
owned and operated by Marlette. The website has the following internet address:
https://www.mybestegg.com/.
8. The Best Egg Loans are made to consumers who are persons, as opposed
to business entities.
9. By receiving Best Egg Loans, consumers incur debt, and the debt is
incurred primarily for personal, family, or household purposes.
10. The debt that consumers incur as a result of the Best Egg Loans is by
written agreement payable in installments and a finance charge is made.
11. The principal loaned to consumers who receive Best Egg Loans does not
exceed $75,000.
12. Best Egg Loans have been made to consumers who are residents of
Colorado (hereinafter the Colorado Best Egg Loans).
13. The residents of Colorado who have received the Colorado Best Egg
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Loans have received the loans from a creditor who has solicited or advertised the
Colorado Best Egg Loans in Colorado.
14. The means of advertising the Colorado Best Egg Loans have included,
without limitation, advertisements that were sent to Colorado residents by mail.
15. From approximately September 2014 through the present, Marlette has
acted as a creditor, as defined in C.R.S. 5-1-301(17), with respect to the Colorado
Best Egg Loans.
16. From approximately September 2014 through the present, Marlette has
made charges to Colorado consumers on the Colorado Best Egg Loans that are
owned by non-bank entities (Non-Bank Colorado Best Egg Loans).
17. From approximately September 2014 through the present, Marlette has
undertaken direct collection of payments from or enforcement of rights against
consumers arising from Non-Bank Colorado Best Egg Loans.
19. The written agreements evidencing Non-Bank Colorado Best Egg Loans
state, [i]f your payment is not received by us within three days of the due date, we
may charge a late fee in the amount of $15.
22. The written agreements evidencing Non-Bank Colorado Best Egg Loans
state, to the extent that state law applies [to this Agreement], the laws of the state
of New Jersey apply.
23. The written agreements evidencing Non-Bank Colorado Best Egg Loans
state, Extension Fees. You agree to pay a fee of $25 or such other amount as
provided by law for the processing of your request for an extension of this
Agreement.
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24. The Best Egg Loans are made to consumers pursuant to a lending
program established by written agreements between Marlette and Cross River
Bank, a New Jersey state-chartered bank (the Best Egg lending program). The
agreements were originally dated February 28, 2014 and have subsequently been
amended.
25. Cross River Bank is identified in the agreements as the entity that
makes the Best Egg Loans to consumers.
26. However, within two business days of when the loans are made, Cross
River Bank sells approximately 90% of the Best Egg Loans to Marlette or Marlettes
non-bank designees.
27. With respect to such Best Egg Loans that Cross River Bank sells to
Marlette or Marlettes non-bank designees, a primary purpose of Cross River Banks
involvement is to allow Marlette and other non-banks to circumvent state laws,
including Colorado laws, that limit the interest rates and other finance charges that
may be assessed on the Best Egg Loans.
28. Specifically, unlike Marlette, certain banks may, pursuant to federal law,
lawfully lend in Colorado and other states at rates that exceed the interest and
other finance charge limits imposed by state law. This right is sometimes referred
to as federal interest rate exportation.
29. Marlette and other non-banks cannot, however, enforce a banks federal
interest rate exportation rights when they purchase loans from banks because
banks cannot validly assign such rights to non-banks. E.g. Madden v. Midland
Funding, LLC, 786 F.3d 246, 250 (2d Cir. 2015) (distinguishing contrary precedent,
and holding that non-bank purchaser of national banks loan could not enforce
banks right to federal interest rate exportation).
30. Further, with respect to the Best Egg Loans that Cross River Bank sells
to Marlette or Marlettes non-bank designees, Cross River Bank is not the true
lender of the loans and, because the loans therefore are not made by a bank, federal
interest rate exportation does not apply for this additional reason. E.g. CashCall,
Inc. v. Morrisey, 2014 W. Va. LEXIS 587 (W. Va. May 30, 2014) (memorandum
decision) (national bank that sold loans to non-bank was not the true lender of the
loans because the non-bank purchaser bore the predominant economic interest in
the loans and non-bank purchaser therefore could not enforce banks right to federal
interest rate exportation).
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31. Cross River Bank is not the true lender of the Best Egg Loans that it
sells to Marlette or Marlettes non-bank designees because Cross River Bank does
not bear the predominant economic interest in the loans.
32. Among other reasons, Cross River Bank does not bear the predominant
economic interest in such loans because:
a. Marlette paid all of Cross River Banks costs associated with the
initiation of the Best Egg lending program.
b. Marlette pays Cross River Banks legal fees related to the Best Egg
lending program.
c. Marlette pays the costs associated with marketing the Best Egg Loans
to consumers.
e. Marlette decides which loan applicants will receive Best Egg Loans,
applying lending criteria agreed to by Marlette and Cross River Bank.
g. Cross River Bank bears no risk that it will lose its principal in the
event that consumers default on the Best Egg Loans that it sells to
Marlette or Marlettes non-bank designees: (1) when Cross River Bank
makes Best Egg Loans that are to be sold, Cross River Bank knows in
advance that Marlette has sufficient funds to purchase the loans
because Marlette is required to maintain a bank account at Cross
River Bank (or another approved bank) with such funds; (2) Marlette
or its designee purchase the Best Egg Loans from Cross River Bank
within two business days of when the loans are made and the purchase
price includes the amount that Cross River Bank advanced to the
consumer, in addition to other amounts; (3) by contractual agreement,
Cross River Bank has no liability to Marlette for the repayment of the
Best Egg Loans, which are sold without recourse; and (4) Marlette is
obligated to indemnify Cross River Bank against any claim that any
aspect of the Best Egg lending program violates the law.
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i. When a consumer pays off a Best Egg Loan in accord with the loan
agreement, both Cross River Bank and Marlette (or its designee) share
in the profit earned on the loan, but Cross River Banks share is only
approximately one percent (1%) of the total profit.
33. Accordingly, Marlette and its affiliated non-bank entities are the true
lender of the Best Egg Loans that Marlette purchases, or that are purchased by its
designees.
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association with Cross River Bank meant that Colorado law provisions regarding
finance charge limits and choice of law restrictions were preempted.
38. After reviewing additional information from Marlette and considering its
position, the Administrator informed Marlette that she rejected the position and
renewed her request that Marlette take the corrective actions identified in the
report of examination.
39. Marlette has refused to take the corrective actions directed by the
Administrator in her report of examination with respect to excess finance charges,
late charges, extension fees, and provisions in consumer agreements contracting for
the application of New Jersey law.
41. Marlette has charged, assessed, collected, or received finance charges and
delinquency charges in connection with Non-Bank Colorado Best Egg Loans that
exceed the finance charges authorized and allowable under C.R.S. 5-2-201 and the
delinquency charges authorized and allowable under C.R.S. 5-2-203.
43. The written agreements evidencing Non-Bank Colorado Best Egg Loans
include terms that purport to provide that the law of a state other than Colorado
applies, in violation of C.R.S. 5-1-201(8).
45. The written agreements evidencing Non-Bank Colorado Best Egg Loans
include terms that purport to permit the creditor to charge a fee of $25 for the
processing of a consumers request for the extension of the agreement, in violation of
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(vi) awarding the Administrator the costs and disbursements of this action,
including attorneys fees, together with all such further relief as the Court deems
just.
CYNTHIA H. COFFMAN
Attorney General
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CERTIFICATE OF SERVICE
This is to certify that a true and correct copy of the foregoing AMENDED
COMPLAINT was duly served by E-Filing upon the following this 15th day of
February, 2017:
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!
EXHIBIT
A