9
State “long-arm statutes” have long held that states have jurisdiction over businesses that enter
their states to conduct business, regardless of where the business is actually located. In Zippo
Manufacturing v. ZippoDot Com, Federal court set a sliding scale to determine whether a business located
in a state outside of the consumer’s state can be held to the laws of the consumer’s state. If a business
merely advertises or provides information, or the information provided is clearly intended for a specific
audience in a particular state, the business does not come under the jurisdiction of a consumer who solely
views the advertisement or information in another state. At the other end of the scale, if a business
solicits business, accepts business, and continues to transact business with a consumer in another state, the
court held that, in fact, the “electronic” business is conducting business in the consumer’s state, and
therefore, is subject to the laws and courts of that state.
18
In an Internet gambling case, an injured Texas consumer sued a California-based gaming website
under Texas law. The website argued that it was not based in Texas, its servers were in California, and its
customers signed a choice of law agreement stating that they would abide by California law. The US
District court held that the gaming site was indeed doing business in Texas and was, regardless of the
contract choice of law, covered by Texas law, permitting Texas consumers to sue the California gaming
site under Texas law in Texas state court.
19
States have broad power to protect citizens where federal law does not directly conflict.
20
The National Consumer Law Center Cost of Credit manual notes that courts generally find that web sites
by which a lender conducts business with residents of the state in question, such as entering into contracts
and exchanging files, meets the minimum contacts test to give the consumer’s state jurisdiction in e-
commerce cases.
21
States are just beginning to come to grips with regulatory issues resulting from loans
made to state residents by out-of-state lenders via the Internet. Iowa’s Uniform Consumer Credit Code
prohibits waiver of rights, such as choice of law provisions in contracts. Regulators hold that interactive
Internet loans made with an Iowa consumer by an out-of-state lender are subject to Iowa credit laws.
22
Other states are adapting credit laws to cover loans made via the Internet. The Colorado Uniform
Consumer Credit Code was amended in 2000 to specifically cover consumer loans made over the Internet,
if the consumer is physically in the state with the transaction is made.
23
Maine’s lending jurisdiction law
was amended to deal with Internet communications and now reads, “This Act…applies to…transactions
… if … (t)he creditor, wherever located, induces the consumer … to enter into the transaction … by …
mail, telephone or electronic mail solicitation…”
24
The Virginia Bureau of Financial Institutions
18
952 F. Supp. 1119, 1124-15 (W.D.Pa. 1997)
19
998 F.Supp. 738, 744 (W.D. Tex. 1998).
20
City of Philadelphia v. New Jersey, 437 U.S. 617, 624-625 (1978).
21
National Consumer Law Center, The Cost of Credit: Regulation and Legal Challenges, p. 392.
22
Electronic communication, Kathleen Keest, Assistant Attorney General, Iowa, received Nov. 15, 2002, on file with author.
23
CO 5-1-201. Territorial application – definitions. (1) Except as otherwise provided in this section, this code applies to
consumer credit transactions made in this state and to modifications, including refinancing, consolidations, and deferrals, made
in this state, of consumer credit transactions, wherever made. For purposes of this code, a consumer credit transaction is made
in this state if: (a) A written agreement evidencing the obligation or offer of the consumer is received by the creditor in this
state; or (b) A consumer who is a resident of this state enters into the transaction with a creditor who has solicited or advertised
in this state by any means, including but not limited to mail, brochure, telephone, print, radio, television, internet, or any other
electronic means. (2) Notwithstanding paragraph (b) of subsection (1) of this section, unless made subject to this code by
agreement of the parties, a consumer credit transaction is not made in this state if a resident of this state enters into the
transaction while physically present in another state.
24
Title 9-A Maine Revised Statutes Annotated, section 1-201(1), “Territorial application”