KANSAS COMMENT, 2010

1. This section enables Kansas to apply the U3C for the protection of its own consumer residents in multi-state transactions.

2. Under the original version of subsections (1) and (2) of this section, the issue of whether a transaction was deemed to have been made in Kansas (thus triggering application of the entire U3C) was dependent on the place at which the executed contract was received by the creditor and whether any face-to-face solicitations occurred in Kansas.

Subsection (1)(b) was amended, however, in the 1999 legislative session to remove the "face-to-face" qualifier from the solicitation test. This amendment was driven primarily by a concern over the growing use of the internet as a means of soliciting Kansas consumers to enter into credit transactions with out-of-state creditors.

Under amended subsection (1)(b), the applicability of the U3C to a multi-state transaction turns on whether there is "solicitation in this state." The Court of Appeals for the 10 th Circuit affirmed the constitutionality of subsection (1)(b) in the case Quik Payday v. Stork, et al., 549 F.3d 1302, (2008), cert. denied 129 S.Ct. 2062. In that case, the court held that the administrator did not act unconstitutionally when the administrator applied the U3C to an internet payday lender located in Utah. In Quik Payday, an out-of-state payday lender made supervised loans to Kansas consumers via the internet. The lender had no agents or offices in Kansas. However, subsection (1)(b) brought these internet payday loan transactions under the U3C. Additional guidance regarding when a solicitation is deemed to have been made in Kansas may be found in Watkins v. Roach Cadillac, Inc., 7 Kan. App. 2d 8, 637 P.2d 458 (1981), the court held that out-of-state radio and newspaper advertisements which reached a Kansas consumer were "solicitations" sufficiently "within this state" to bring the transaction within the scope of the KCPA. Another example of a case construing a similar phrase is Norton v. Local Loan, 251 N.W.2d 520 (Iowa 1977), the court held that a long distance phone call from the creditor's out-of-state agent to the consumer was "conduct in this state" within the meaning of that phrase in the Iowa U3C.

It seems quite unlikely that a Kansas resident will locate an out-of-state creditor, travel to the creditor's state and consummate a consumer credit transaction with that creditor unless the creditor has "solicited" the consumer by the use of targeted telephone, mail or other direct marketing or general radio, television, or other non-individualized advertisements received or seen by the consumer in Kansas. Thus, as a practical matter, nearly all consumer credit extended by out-of-state creditors to Kansas residents would be deemed to have been made in Kansas. The entire U3C (including its licensing requirements, its disclosure requirements and its substantive limitations) would apply to those transactions.

3. Under subsections (7) and (8), choice of law agreements have been invalidated except where the law chosen is that of the state of the consumer's residence. This eliminates the danger that creditors could induce consumers to agree that the applicable law would be that of a creditor's haven that had no effective credit protection.

4. As noted in Kansas comment 2 to this section, virtually all supervised loans extended to Kansas residents would be deemed to have been made in Kansas and, as a result, out-of-state creditors extending those loans would need a Kansas supervised lender's license. Note, however, that (a) an out-of-state supervised financial organization does not need a supervised lender's license to make supervised loans in Kansas and (b) federally-insured financial institutions may "export" to Kansas the interest rates and related charges permitted by the law of their home states as a matter of federal law. See Smiley v. Citibank (South Dakota), N.A., 116 S.Ct. 1730 (1996).

Law Review and Bar Journal References:

"Summary Repossession, Replevin, and Foreclosure of Security Interests," Thomas V. Murray, 46 J.B.A.K. 93, 95 (1977).

Warranty violations in tripartite finance lease agreements, Winton A. Winter, Jr., 25 K.L.R. 573, 582 (1977).

"Insurer's Bad Faith: A New Tort for Kansas?" Janet Amerine and Jan E. Montgomery, 19 W.L.J. 467, 485 (1980).

"Creditor Beware: From Default Through Deficiency Judgment," Wanda M. Temm, 60 J.K.B.A. No. 8, 17, 18 (1991).

"To Be (Transformed) or Not to Be: The Transformation Versus Dual-Status Rules for Purchase-Money Security Interest Under Kansas' Former and Revised Article 9," Christopher Harry, 50 K.L.R. 1095 (2002).

"History & Overview of the Uniform Consumer Credit Code," Ryan E. Hodge, J.K.T.L.A. Vol. XXVI, No. 3, 8 (2003).

Attorney General's Opinions:

Finance charge for consumer loans; supervised lenders. 79-286.

Scope and jurisdiction of UCCC; territorial application. 90-38.

CASE ANNOTATIONS

1. Cited in holding parties to business loans may agree to subject themselves to UCCC (K.S.A. 16a-1-109). Farmers State Bank v. Haflich, 10 Kan. App. 2d 333, 336, 699 P.2d 533 (1985).

2. Issue concerning whether KUCCC (K.S.A. 16a-5-101 et seq.) applied to mortgage transaction between out of state financier and residents precluded summary judgment. Pilcher v. Direct Equity Lending, 189 F. Supp. 2d 1198, 1208 (2002).

3. Plaintiff offering payday loans over internet alleges commerce clause and due process violations; summary judgment for defendant. Quick Payday, Inc. v. Stork, 509 F. Supp. 2d 974, 977, 984, 985 (2007).

4. Cited; Kansas regulation of payday loans over internet held not to violate dormant commerce clause. Quik Payday, Inc. v. Stork, 549 F.3d 1302, 1305 (2008).