Internet Transactions and Out-of-State Licensing

Most dealers use the internet to sell cars. In our experience, however, few dealers get any legal advice before they set up their online sales efforts. That’s dangerous, because operating a business online and across state lines is an activity with a host of legal issues that courts are only now beginning to address.


One example of such a legal issue is the question of whether a dealership’s online activities expose the dealership to the licensing authorities of the states in which the dealer’s customers reside. A recent case dealing with internet lending offers some insights into the sorts of questions posed by online business activities.


Cash America Net of Nevada, LLC made payday loans to Pennsylvania residents over the internet from its location in Nevada. Cash America was not licensed as a lender under Pennsylvania law.


Prior to 2008, the Pennsylvania Department of Banking took the position that lenders without any personnel or locations in Pennsylvania could make loans without a license under the Consumer Discount Company Act. The CDCA requires a license in order to make loans of $25,000 or less at rates over six percent if the person operates “in this Commonwealth.”


In the past, the Department interpreted that phrase as excluding entities without offices or employees physically in Pennsylvania. In 2008, the Department changed its policy, announcing that the CDCA licensing requirement applied even if a lender made loans from out of state using the internet or by mail.


Cash America sued the Department, seeking a declaratory judgment and injunctive relief. Cash America argued that the Department’s new interpretation conflicted with the CDCA’s statutory language, amounted to unauthorized rule-making, and was inconsistent with the Commerce Clause of the U.S. Constitution. The trial court ruled for the Department, finding that the CDCA applies to out-of-state lenders. Cash America appealed.


The Supreme Court of Pennsylvania upheld the trial court’s ruling for the Department, noting that Pennsylvania’s well-established public policy prohibits usurious lending. The high court then found that the plain language of the CDCA supported the Department’s interpretation. The high court found that if an out-of-state lender engages in business in Pennsylvania by making loans that fall within the scope of the CDCA, the lender is subject to the licensing requirement regardless of whether it has personnel in the state.


The court rejected the argument that the Department had engaged in unauthorized rulemaking, stating that the Department had merely issued its interpretation of the statute, which the court was not bound to follow.


The high court also found that there was no burden on interstate commerce because the Department did not require out-of-state lenders to maintain any physical location in Pennsylvania. Therefore, an out-of-state lender making loans in Pennsylvania through the internet will be subject to licensing under the CDCA if the loans are in amounts of $25,000 or less and include rates that exceed the general usury rate.


So, what if your dealership is selling cars over the internet, and a state in which one of your buyers resides requires a license for the activity of selling cars. How would you fare if the regulators in the customer’s state sued you for doing business without the license their state requires?


“Could they do that?” you ask? Well, in the good old U.S. of A., it sometimes seems that anyone can sue anyone for anything, any time. But would such a suit against a dealer be successful, as was Pennsylvania’s action against Cash America?


That, as the lawyers say, would depend. It would depend on the wording of the licensing laws of the buyer’s state, but it would also depend upon the activities of the dealer in advertising the sale, entering into the transaction, documenting the transaction and delivering the vehicle. Those are the elements of the transaction that it would be handy to have your lawyer review and preferably before, rather than after, you are sued.


Cash America Net of Nevada, LLC v. Commonwealth of Pennsylvania, 2010 Pa. LEXIS 2386 (Pa. October 19, 2010)


Tom Hudson is the author of CARLAW® II, Street Legal, andCARLAW®, and is the editor/author of the CARLAW® F&I Legal Desk Book, the publisher of Spot Delivery®, a monthly legal newsletter for auto dealers, and the editor in chief of CARLAW®, a monthly report of legal developments in all states for the auto finance and leasing industry. In addition, he is a partner in the law firm of Hudson Cook, LLP. Clayton Swears is an associate in the firm of Hudson Cook, LLP. For information, call 410-865-5411, email, or visit





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