Can a NC consumer-finance licensee make a loan to a borrower who already has a loan from the licensee's affiliated bank or other lender that is not covered by the Consumer Finance Act?
Plain-English summary
Commissioner of Banks William Graham asked AG Michael Easley three related questions about the interaction between the NC Consumer Finance Act and lenders affiliated with consumer-finance licensees.
Question 1: Does G.S. 53-179 bar a consumer-finance licensee from making a loan to a borrower who already has a loan from the licensee's affiliate, parent, or subsidiary that is not subject to the Consumer Finance Act (an affiliated bank, for instance)?
Question 2: Is a State Banking Commission policy valid if it bars a borrower from being indebted both to a licensee and to a non-CFA affiliate, unless the transactions are separated by at least 90 days and are not part of the same financing transaction?
Question 3: Does G.S. 53-179 bar a licensee from soliciting credit card accounts for an affiliated FDIC-insured bank when the bank will extend credit to borrowers who are indebted to the licensee?
The AG answered all three the same direction: no, the licensee is not prohibited.
The textual hook is G.S. 53-179: "A licensee shall not grant a loan in one office to any borrower who already has a loan in another office operated by the same entity or by an affiliate, parent, subsidiary or under the same ownership, management or control, whether partial or complete." Read literally, that prohibits a CFA licensee from lending to a borrower who has any loan from any related entity, regardless of whether the related entity is itself subject to the CFA.
But the AG read the statute together with two other provisions. First, G.S. 53-180(h) and (i) explicitly contemplate that non-CFA affiliates and subsidiaries operating in the same office as a licensee can make loans, including home loans. If G.S. 53-179 prohibited concurrent lending across CFA and non-CFA related entities entirely, those provisions would have no work to do. Second, G.S. 53-191 carves out a broad list of lenders from the CFA (banks, trust companies, savings and loans, credit unions, agricultural credit corporations, production credit associations, pawnbrokers, industrial banks, real estate loan negotiators, installment paper dealers). The carve-out signals that the legislature views these lenders as separately regulated, not as needing the CFA's protections layered on top.
Reading the statutes together (in pari materia, per Carolina Truck & Body and Batten), the more specific provisions (G.S. 53-180's office-sharing rules and G.S. 53-191's exemptions) control over the more general one-loan rule in G.S. 53-179. The legislature did not intend to prevent licensees and their exempt affiliates from concurrent lending. G.S. 53-179's one-loan rule applies when both lenders are subject to the CFA, not when one is and the other is exempt.
That answer disposed of Question 1. Question 2 fell along with it: a Banking Commission policy purporting to bar concurrent loans across CFA-licensee and exempt-affiliate channels was invalid to the extent it rested on G.S. 53-179. The AG also flagged a procedural defect: even if the policy had some other valid basis, it had not been promulgated as a rule under the Administrative Procedure Act. G.S. 150B-2(8a) defines a "rule" to include any agency standard of general applicability that implements or interprets a statute. A Banking Commission "policy" that operates as a binding limitation on licensees is functionally a rule, and must follow APA rulemaking procedure.
Question 3 (credit card solicitation by the licensee for the affiliated bank) followed the same analysis. If the affiliated bank can make a loan to a borrower who already has a CFA-licensee loan, the licensee can solicit credit card accounts on the bank's behalf. The Consumer Finance Act does not bar the solicitation.
Currency note
This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The Consumer Finance Act has been substantively amended multiple times since 1993, including in the 2013 NC consumer finance reform (S.L. 2013-162). The State Banking Commission's rules and the Office of the Commissioner of Banks' policies have also been rewritten several times. The federal regulatory environment (Dodd-Frank, the CFPB's authority) has also reshaped how state consumer-finance regulation interacts with federal bank affiliates. Anyone with a current question about consumer-finance lending alongside affiliated banks should consult the current Consumer Finance Act, current Banking Commission and Commissioner of Banks rules, and current federal regulations.
Background and statutory framework
NC's Consumer Finance Act (Chapter 53, Article 15) regulates the small-dollar lending industry. It requires anyone making consumer loans below a certain dollar threshold and above a certain interest rate to be licensed by the State Banking Commission, and it imposes various structural restrictions (cap on the number of loans to one borrower, limits on interest rates, limits on certain practices) to protect consumers from predatory or excessive lending.
The CFA's regulatory model is layered. The CFA does not pretend to regulate all consumer lending in NC. It carves out wide swaths of the consumer-lending universe by exempting institutions that are separately regulated. G.S. 53-191 lists the major exemptions: banks (regulated by state and federal banking laws), trust companies, savings and loans, credit unions, agricultural credit institutions, pawnbrokers (regulated by Chapter 91A), industrial banks, real estate loan negotiators, and installment paper dealers. Most of the institutional lending in NC is covered by one of those exemptions, leaving the CFA to regulate the smaller niche of standalone consumer finance companies.
G.S. 53-179 contains the one-loan rule: a licensee cannot make a second loan to a borrower who already has a loan from the same licensee or any affiliate, parent, subsidiary, or related-control entity. The point of the rule is to prevent a licensee from circumventing the CFA's per-loan limits by structuring multiple loans through related corporate vehicles. If a licensee could make a loan and have its affiliate make a second loan to the same borrower, the borrower could be subjected to combined interest, fees, and charges that the CFA's limits were designed to prevent.
The interpretive question Graham raised was whether G.S. 53-179 applied when the affiliate was a non-CFA entity (typically an affiliated bank). The literal text seemed to say yes. But the practical effect would be sweeping: any borrower who had an affiliated-bank loan would be locked out of the CFA-licensee, even though the bank loan is regulated separately and serves different purposes. That literal reading would also conflict with G.S. 53-180(h) and (i), which explicitly contemplate concurrent lending by same-office affiliates.
The AG's resolution applied two settled rules of statutory construction. First, the in-pari-materia rule from Carolina Truck & Body Co. v. General Motors Corp. (1991): when two statutes address the same subject matter, they must be read together and reconciled to give effect to each. Second, the specific-controls-general rule from Batten v. N.C. Dept. of Correction (1990): when one statute deals with a subject in general terms and another deals with it specifically, the specific provision controls the general one. Both rules pointed to the same answer: G.S. 53-180's specific contemplation of concurrent lending by same-office affiliates (some of which are necessarily non-CFA, like a bank using the same office as its CFA licensee subsidiary) controls over G.S. 53-179's general one-loan rule. The general rule reaches CFA-on-CFA concurrent lending; the specific rule allows CFA-with-exempt-affiliate concurrent lending.
The APA point in the AG's response is also useful. Banking Commission policies that operate as binding limitations on licensees are functionally rules, even if not labeled as such. G.S. 150B-2(8a) defines a rule broadly to include any agency standard, regulation, or statement of general applicability that implements or interprets a statute, or that describes the procedure or practice requirements of an agency. A 90-day-separation policy that licensees must follow on pain of regulatory consequence fits squarely within that definition. So even if some independent statutory basis for the policy existed, the policy would need to go through APA notice and comment to be enforceable.
The combination of (1) the substantive statutory-construction holding and (2) the APA procedural holding effectively invalidated the Banking Commission's policy. The Commission would have had to either find a different statutory hook for the policy and go through APA rulemaking to enforce it, or stop enforcing the 90-day rule against licensees with non-CFA affiliated lenders.
Common questions
Can a NC consumer-finance licensee lend to a borrower who has a credit card from an affiliated bank?
Yes. The credit card debt is from the affiliated bank, which is exempt from the Consumer Finance Act under G.S. 53-191. The CFA's one-loan rule does not bar the licensee from making a separate loan to the borrower.
Why does the AG's reading favor licensees rather than borrowers?
Because the legislature's design of the CFA shows it. The CFA is a targeted regulatory regime, not a comprehensive consumer-credit code. The G.S. 53-191 exemptions deliberately leave non-CFA lenders to their separate regulatory regimes. The 53-180 office-sharing provisions explicitly contemplate concurrent lending. Reading the one-loan rule literally to block all concurrent CFA-and-exempt-affiliate lending would conflict with both of those features.
What if the licensee and its affiliated bank deliberately structure loans to evade the CFA's limits?
That is a different question. If a CFA licensee and an exempt affiliate structure transactions to circumvent the CFA's per-loan limits, the substance of the transactions (rather than the formal labeling) may control. NC courts can look through corporate forms in cases of clear circumvention. But the AG's opinion is about the general rule, which allows concurrent lending by CFA licensees and exempt affiliates.
Did the Banking Commission have authority to impose a 90-day separation rule on its own?
The AG said no, at least not without going through APA rulemaking. A policy that operates as a binding limitation on licensees is functionally a rule under G.S. 150B-2(8a) and must follow notice-and-comment procedures to be enforceable.
Can a CFA licensee solicit credit card accounts for its affiliated bank?
Yes. The credit-card solicitation is not a loan by the licensee, and the affiliated bank is not subject to the CFA. The Consumer Finance Act does not prohibit the solicitation.
Source
Original opinion text
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Does G. S. §53-179 prohibit a licensee under the Consumer Finance Act (Art. 15, G.S. Chap. 53) from making a loan to a borrower who is already indebted to the licensee's affiliate, parent, or subsidiary which is not subject to the Consumer Finance Act?
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Is a Commission policy valid when it prohibits a borrower from being indebted both to a licensee and to an affiliate of the licensee not subject to the Consumer Finance Act, unless the transactions were separated by at least 90 days and were not a a part of the same financing transaction?
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Does G.S. §53-179 prohibit a licensee from soliciting credit card accounts for an affiliated FDIC insured bank when the bank will extend credit to borrowers who are indebted to the licensee?
DISCUSSION
(1) The provisions of G.S. §53-179 which are pertinent here read as follows:
A licensee shall not grant a loan in one office to any borrower who already has a loan in another office operated by the same entity or by an affiliate, parent, subsidiary or under the same ownership, management or control, whether partial or complete. This section shall apply to intrastate and interstate operations.
The issue is whether the statute prohibits a licensee under the Consumer Finance Act from making a loan to a borrower who has already contained a loan from an entity related to the licensee, such as an affiliate, a subsidiary, or a parent, when the related entity is not subject to the Consumer Finance Act. We have found no decision of an appellate court of this State which construes or applies this statute, and, therefore, we cannot speak with certainty. There are other provisions within the Consumer Finance Act, however, which, we believe, show the legislative intent.
First, G.S. §53-180 provides as follows:
(h) Limitations on Home Loans. – No affiliate operating in the same office or subsidiary operating in the same office of a licensee shall make any home loan as defined in G.S. 241.1A(e) in a principal amount of less than three thousand dollars ($3,000).
(i) Limitation on Conditions to Making Loans. – A licensee or an affiliate operating in the same office or subsidiary operating in the same office of a licensee shall not make as a condition of any loan the refinancing of a borrower's home loan as defined in G.S. 24-1.1A(e) which is not currently in default.
As is readily apparent from these provisions, the General Assembly contemplated that affiliates or subsidiaries, not subject to the Consumer Finance Act but operating in the same office as a licensee, would make loans. It also appears from the language of subsection (i) that the General Assembly contemplated that the licensee and entities related to the licensee, but not subject to the Consumer Finance Act, could both make loans to a borrower. Were this not so, there would appear to be little reason to prohibit a requirement for refinancing a home loan, since a licensee may not make real estate loans (G.S. §53-180(f) and would have little reason to require a refinancing unless the licensee was related to the home loan lender.
Next, an extremely broad spectrum of lenders is specifically exempt from the provisions of the Consumer Finance Act by G.S. §53-191, which reads:
Nothing in this Article shall be construed to apply to any person, firm or corporation doing business under the authority of any law of this State or of the United States relating to banks, trust companies, savings and loan associations, cooperative credit unions, agricultural credit corporations or associations…production credit associations…pawnbrokers leading or advancing money on specific articles of personal property, industrial banks, the business of negotiating loans on real estate as defined in G.S. 105-41, nor to installment paper dealers as defined in G.S. 105-83 other than persons, firms and corporations engaged in the business of accepting fees for endorsing or otherwise securing loans or contracts for repayment of loans.
It is an accepted rule of statutory construction that when two statutes address the same subject matter, they must be read in pari materia and reconciled, if possible, to give effect to each. Carolina Truck & Body Co. v. General Motors Corp., 102 N.C.App. 262, 402 S.E.2d 135 (1991). Further, when two statutes deal with common subject matter, one in general and comprehensive terms and the other in a more minute and definite way, they should be read together and harmonized, if possible, to effectuate consistent legislative policy. If there necessarily is any repugnance between them, the statute dealing with the subject matter in a more minute and detailed way will prevail over the more general statute. Batten v. N.C. Dept. of Correction, 326 N.C. 338, 389 S.E. 2d 35 (1990).
Application of these rules of construction to the matter at hand leads us to the view that although G.S. §53-179 appears to prohibit all loans by a licensee when the borrower already has a loan with an entity related to the licensee, the more particularized provisions of G.S. §§53-180 and 53-191 reveal a legislative intent to permit licensees to make loans to borrowers who already have obtained loans from a related entity. It is our opinion, therefore, that a licensee and a related entity not subject to the Consumer Finance Act by virtue of G.S. §53-191 may make concurrent loans to a borrower.
(2) You have asked for an opinion as to the validity of a policy of the State Banking Commission which prohibits concurrent loans by a licensee and by a related entity not subject to the Consumer Finance Act, unless the loan transactions are separated by at least 90 days and are not a part of the same loan transaction. It is our opinion that such a policy is not valid, for the reasons expressed above, if it is based on the premise that G.S. §53-179 prohibits concurrent loans by a licensee and an entity related to the licensee that is not subject to the Consumer Finance Act. If there is some other, valid basis for the policy, we believe that it is currently unenforceable because it has not been promulgated as a rule pursuant to the administrative Procedure Act (APA) (G.S. Chap. 150B). The APA defines a rule, inter alia, as "any agency regulation, standard, or statement of general applicability that implements or interprets an enactment of the General Assembly…or that describes the procedure or practice requirements of an agency…."
G.S. §150B-2(8a). The limitation on loan activities imposed by the policy in question clearly describes a procedure or practice requirement of the Commission and may be intended as a "regulation…that implements or interprets an enactment of the General Assembly."
(3) You have asked for an opinion whether solicitation by a licensee under the Consumer Finance Act of credit care accounts on behalf of a bank of which the licensee is a subsidiary violates the Consumer Finance Act. For the reasons set out above, we do not believe that such a solicitation violates the Act.
We hope that we have responded fully to your request, but if you have any questions or comments, please contact us.
Ann Reed
Senior Deputy Attorney General
Henry T. Rosser
Special Deputy Attorney General