The appeals court agreed with the trial court that the law violated the U.S. Constitution's "dormant commerce clause," a principle that prohibits states from interfering with interstate commerce or regulating affairs in other states if those activities are "wholly unrelated" to the state enacting the law.
While the appeals court noted that Indiana had "colorable interest in protecting its residents from the type of loan that Midwest purveys," it also gave credence to the argument of the lender that title loans might be "a good thing" and ruled that Indiana's law impermissibly sought to regulate business in a different state. It further ruled that Indiana could not prohibit the Illinois business from advertising in Indiana.
Although the facts of this case concern regulation of car title lenders, the case impacts regulation of many other types of alternative financial services, including payday loans, targeted to low-income and working poor consumers, residents of minority neighborhoods and individuals with heavy debt burdens or less favorable credit histories.
AARP seeks to ensure that consumers — particularly those who are cash-strapped or living at the margins — are not preyed upon with high interest, high fees and misleading loan terms. Indiana's law is an important step in the right direction and the decision is a significant disappointment.