Taylor Gess is joined by Joseph Reilly and Paul Boller to explore the intricacies of state licensing in the point-of-sale finance sector.
In this insightful crossover episode of The Consumer Finance Podcast and Payments Pros, host Taylor Gess is joined by Joseph Reilly and Paul Boller to explore the intricacies of state licensing in the point-of-sale finance sector. The discussion delves into the distinctions between licensing and notification requirements, the role of sales finance agencies, and the implications for third-party facilitators and direct lenders. Gain insights into how state-specific regulations impact nonbank entities and learn about the unique challenges sellers and third-party providers face in navigating these regulatory landscapes.
The Consumer Finance Podcast x Payments Pros– Point-of-Sale Finance Series: Understanding State Licensing for Nonbank Providers
Host: Taylor Gess
Guests: Joseph Reilly, Paul Boller
Air Date: October 9, 2025
Taylor Gess:
Welcome to this special edition of The Consumer Finance Podcast. I'm Taylor Gess, an associate in Troutman Pepper Locke's Consumer Financial Services Regulatory Practice, and I'll be your guest host for today's episode. Today, we're going to be giving you another installment of our special highlight series on point-of-sale finance, where we will discuss state licensing issues point-of-sale finance providers face.
But before we jump into that topic, let me remind you to visit and subscribe to our blogs at TroutmanFinancialServices.com and ConsumerFinancialServicesLawMonitor.com. And don't forget about all of our other podcast we have. The FCRA Focus, all about credit reporting. The Crypto Exchange, about crypto and digital assets. We have Unauthorized Access, which is our privacy and data security podcast, Payments Pros, and of course, Moving the Metal, our auto finance podcast. All of those are available on all popular podcast platforms. Speaking of those platforms, if you like this podcast, let us know. Leave us a review on your podcast platform of choice and tell us how we're doing.
Now, as I said, today's episode is another installment in our special highlight series on point-of-sale finance. Here, I'm joined by my colleagues, Joe Reilly and Paul Boller to talk about the role of state licensing and providing point-of-sale financing. Joe, Paul, welcome to the podcast.
Joseph Reilly:
Thank you, Taylor. Pleasure to join you.
Paul Boller:
Glad to be here.
Taylor Gess:
So, I understand today, you both are going to walk our audience through some of the licensing considerations as they relate to the various point-of-sale finance products we've discussed on earlier podcast episodes. Do you want to start by helping us understand what we need to think about with regards to state licensing in a credit sale program?
Jospeh Reilly:
Absolutely, Taylor. Thank you for having us again. I want to start off when we're talking about licensing generally, we're really talking about the activities of nonbanks. Banks are only subject to licensing in very unique areas. So, we're going to be focusing on nonbank activities since nonbanks don't enjoy those exemptions from licensing. Just starting at a very basic level of POS financing, let's talk about the model where the seller is simply offering retail installment contracts to the buyer. That is an activity by sellers that is very lightly regulated from the licensing standpoint, almost no states require a seller to obtain a license before offering sale through a retail installment contract or a RIC.
There are a number of states that have adopted the Uniform Consumer Credit Code, the UCCC, that do require sellers simply to file a notification before engaging in that activity. But a notification doesn't include an approval process. You just file a notice and you've complied with the law. So, there are about 11 UCCC states, and most of them do require that.
Very important when talking about sellers offering RICs is that, there are two special categories in the licensing world, and they are exceptions to the general rule I mentioned that sellers offering RICs is lightly regulated. Those two exceptions are for either vehicles, some states have a retail installment code that is specific to motor vehicles. The second exception is home improvement, construction, and services. Again, some states, in addition to their general retail installment sales act, have a code specifically for when home improvements are sold that way.
Taylore Gess:
Joe, earlier you mentioned the difference kind of between a notification and a license. Are you able to explain a little bit more about the differences between those two?
Joseph Reilly:
Yes. Thank you, Taylor, for asking me to expand on that because it is a very important distinction. A license is a much heavier lift than a notification. A license generally calls for some intensive background information from the applicant. A lot of licenses, the application requires fingerprints. It requires a credit check, an FBI background check. Sometimes even, there are net worth requirements. The application is subject to approval or disapproval by the regulator and you don't have a license until you've been approved. Sometimes the regulator might have questions and that drags the process out, so that's a license. That's a heavy lift.
A notification, much lighter lift. There's no approval process. The form that you fill out is generally much simpler. There are no background checks or anything like that. Once you file the form, you're done. You've complied with the law. There's no process of waiting for the regulator to judge the sufficiency. As long as you filled out the notification completely, provided minimal information, you're done with the notification. We've talked now about sellers offering RICs, I'm going to turn it over to Paul Boller for some additional activities by sellers in the point-of-sale space.
Paul Boller:
Yes. So, in addition to being able to provide the goods and services on credit from the sense of an installment plan, the other options sellers can go down is to provide a lease or provide a rent to own. So, from the consumer standpoint, those may not be much different, but in a traditional lease, there is not necessarily the assured outcome that the consumer is going to own the product at the end of the agreement. Though, oftentimes, the agreement will have some sort of option at the end for the consumer to purchase the good. However, with the rent to own, that's kind of built into it. It's not necessarily that they have to purchase it, but the plan is for them to pay a certain amount of payments and at a certain point in time that they will acquire ownership in the good.
Those, from the lease side at least, states don't tend to require licenses or notifications for sellers, in this case, to provide a lease model. However, the rent to own, there are some states that do require licenses for that type of agreement.
Taylor Gess:
Thanks, Joe and Paul. So, we've talked a lot about licensing as it relates to sellers of goods. So, what if a seller does not want to hold that contract for its entire life, or if a third party wants to get involved in point-of-sale financing, what would those third parties, whether it's a sales financing agency, a fintech, or so on, need to think about with respect to state licensing?
Joseph Reilly:
When we talk about a seller that does not want to hold the risk of the buyer not repaying, there are a couple of options. Before we get fancy, let's talk about a very common option that you alluded to, which is where a third party comes in to buy the RIC from the seller. Usually, immediately after the seller and the buyer sign their contract, the contract is immediately assigned to a third party. In this case, we usually call the third party a sales finance agency, and that third party will then collect the monthly payments from the consumer over the time of the retail installment contract.
It's kind of ironic that we mentioned that there's relatively little licensing for a seller that wants to offer a RIC. There is actually more licensing for a third party that buys the RIC from the seller. That is more licensing of these sales finance agencies. There are actually quite a number of states that require a license to buy RICs from a seller. So, that's one kind of simple option and those sales finance agencies need to be licensed by a number of states.
Another point-of-sale model that also involves licensing is what I'll just call the bank model. In the bank model, we actually have two third parties in addition to the seller. We have a nonbank facilitator, often referred to as a fintech, which has entered into a partnership with a bank. And in that partnership, the partnership will offer the seller an online platform that the seller can direct any buyer that's interested in financing to. And then, on the platform, the buyer can apply for financing.
Now, the financing will be provided directly by the bank. So, the financing contract would be between the bank and the borrower. But the facilitator who works in partnership with the bank often will need a broker license since the fintech is effectively brokering the loan that the bank is going to make to the buyer. There are a number of states that require broker licenses. In some states, that actually falls under the lender licensing rubric. So, that is sometimes referred to as lender licensing, even though the actual lender on a credit contract is the bank.
Then, when it comes to collecting this bank loan, the facilitator that is partnered with the bank often will engage in collection activities. A number of states do require collection agency licenses, even though the facilitator is not a traditional "debt collector" that only gets involved after default. These are facilitators who are collecting from inception of the loan, but a number of states do regulate that activity and will require a collection agency license. Paul, do you want to talk about a more direct lending option for point-of-sale financing?
Paul Boller:
Absolutely, Joe. For third parties, in addition to what Joe just described, a straightforward method could be for the third-party to directly lend to the consumer and provide a loan at the point that the consumer checks out or purchases the product or service. Now, this is a very traditional area of state regulation. Many states require licenses for a third party to provide a loan to the consumer. The, if you will, triggers for these licenses vary. It can depend on the amount of the loan. It could depend on the term or the interest rate. So, how the loan is made or the terms that will greatly impact whether the third party needs to be licensed. But this is a very traditional area of regulation and many states will require a license in order to provide a loan to a consumer in this model.
Joseph Reilly:
Yes. To be clear, when we're referring to direct lending, the direct lender is always in our verbiage the nonbank. That's why it would need the lender license.
Taylor Gess:
Yes, that's right. A bank could be a direct lender too, the licensing implications for a bank just differ, right?
Joseph Reilly:
Right, yes. As we discussed at the outset, banks are exempt from virtually all state licensing regimes in the consumer finance area. National banks generally don't need to get licensed as a matter of preemption. Then, by statute, virtually every state licensing regime goes through the trouble of exempting state-chartered banks as well.
Taylor Gess:
That's right. Joe, I think there are some laws where even if a bank might be exempt from licensing requirement, there could potentially be other substantive obligations, is that right?
Joseph Reilly:
Absolutely right. So, I'm the licensing guy, so I tend to focus on licensing, but banks are not exempt in a number of cases from substantive requirements that a state will impose on the financing. I've just been talking about licensing obligations. I will say it's particularly true that banks may need to follow substantive lending laws in those UCCC states that I mentioned. There are 11 or so, and they are notorious for not exempting banks from some of the substantive lending requirements.
Paul Boller:
Joe, it's probably helpful to remind our folks that are listening from the bank perspective, that even in states that do while they're mostly exempt, there are a handful of states that have some sort of verbiage that could potentially require them to apply for an exemption. So, they should be aware of those sort of requirements.
Joseph Reilly:
That's true. To get granular, while state-chartered banks are exempt from virtually all licensing regimes, some of those regimes do have kind of funky requirements, where even though the bank is exempt, the regulator expects the bank to file a sort of notice of, of exemption, basically just to get the bank on file, and the regulators look so the bank can track who's – and also, the regulator can track who's in the state and not in the state.
Taylor Gess:
Yes, Paul, that's a really good point. I think with respect to state licensing in general, all of the licensing triggers and where you end up with respect to needing or not needing a license is really – it can be a tricky product-specific and product-structure-specific decision. It's not just a blanket yes or no.
Joseph Reilly:
Absolutely. If you know what your business model is, you know, in some cases, there's places where you will be able to operate without a license, and there's other places where you'll need that license, but you're correct to highlight that. It's very product-specific, not just, "Oh, I'm offering a loan. I need a license." It depends on, "Well, what's your interest rate? What's your term?" That can be said for many other products.
Taylor Gess:
Joe and Paul, we've done a great job introducing the audience to some state licensing implications in the point-of-sale finance space. Let's leave this special series here for now, and we'll pick back up with another very interesting topic on our next episode for The Consumer Finance Podcast. In the meantime, thanks to our audience for listening today. Don't forget to visit and subscribe to our blogs, TroutmanFinancialServices.com and ConsumerFinancialServicesLawMonitor.com.
While you're at it, why not visit us on the web at Troutman.com and add yourself to our Consumer Financial Services e-mail list. In that way, we can send you copies of the alerts and advisories that we send out, as well as invitations to our industry-only webinars that we put on from time to time. Of course, stay tuned for a great new episode of this podcast every Thursday afternoon and look forward to the remainder of our series on point-of-sale finance coming soon to your podcast feed. Thank you all for listening.
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