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On April 15, the Texas Court of Appeals affirmed a grant of summary judgment in favor of appellees, a loan servicer and a national bank acting as a trustee, concluding, among other things, that the appellant homeowner failed to provide sufficient evidence to support her claims that the appellees violated the Texas Debt Collection Act (TDCA) and Texas Deceptive Trade Practices and Consumer Protection Act (DTPA). According to the opinion, the homeowner—who defaulted on a loan that was referred to foreclosure—filed a lawsuit to stop the foreclosure sale, alleging that the defendants made “fraudulent, deceptive, or misleading representations” under the TDCA by allegedly failing to (i) provide an accurate accounting of received payments and credits; (ii) apply received payments; (iii) clearly disclose “the name of the person to whom the debt had been assigned or was owed when making a demand for money”; (iv) provide requested documentation regarding the assignment of the promissory note; and (v) provide proper prior notice to the appellant concerning the foreclosure proceedings. Additionally, the appellant further alleged that the appellees violated the DTPA by using fraudulent, deceptive, or misleading representations in the collection of appellant’s debt. The trial court granted summary judgment in favor of the defendants, and the appellate court affirmed the trial court’s decision. With respect to the appellant’s TDCA claims, the appellate court held, among other things, that first, the homeowner failed to show that the appellees made affirmative misrepresentations concerning the loan’s character or amount; second, failure to apply payments is not specifically a “‘prohibited misleading practice’” under the TDCA; and third, the appellees provided evidence showing the homeowner was “appropriately notified” of her default, and that under the TDCA, “service is completed upon deposit in the mail, not actual receipt.” With respect to the appellant’s DTPA claim, the appellate court held that the DTPA only applies to the acquisition of goods and services by lease or purchase and that loan servicing, foreclosure, and loan modification activities are not goods or services under the DTPA.
Maryland signs amendments related to debt settlement services, mortgage lenders, and credit service businesses
On April 18, the Maryland Governor approved several bills concerning debt settlement service providers, mortgage lenders, and credit service businesses.
Under HB 59, registrants providing debt settlement services are required to apply for a license or renewal and obtain a valid unique identifier issued by the Nationwide Multistate Licensing System and Registry (NMLS) on or after July 1. HB 59 also requires the Office of the Commissioner of Financial Regulation (OCFR) to establish a time period of at least two months within which registrants must transfer licensing information to NMLS. Additionally, registration fees are decreased to $400 from $1,000 for the issuance or renewal of a registration.
HB 61 amends the Annotated Code of Maryland related to mortgage lenders, loan servicers, and loan originators to, among other things, (i) alter and clarify certain tangible net worth requirements and criteria for mortgage lenders, servicers, and originators; (ii) repeal a provision that requires licensees to reapply for a license should a location change request not be filed in a timely manner with the OCFR; (iii) extend examination cycle periods; and (iv) amend certain expiration provisions related to mortgage loan originator licensees. The amendments take effect October 1.
Finally, SB 68 amends the definition of a “credit service business” to mean, among other things, any person who represents the ability to provide advice or assistance to consumers concerning improving a consumer’s credit record, establishing a new credit file, or obtaining credit extensions. SB 68 also exempts certain credit services businesses from certain information statement requirements when engaged to obtain an extension of credit for a consumer. Credit services businesses that qualify for an exemption must provide the consumer with certain information concerning the right to file a complaint as well as a copy of the contract before the consumer executes the contract. SB 68 takes effect October 1.
On April 19, the SEC announced that an online lending platform will pay a $3 million penalty to resolve allegations it miscalculated and materially overstated annualized net returns (ANR) to investors. According to the order, between 2015 and 2017, the company allegedly excluded securities linked to certain charged-off consumer loans from its calculation of ANR and allegedly failed to identify and correct the error, despite knowing that employees misunderstood the code underlying the ANR calculation and despite alleged complaints by investors. As a result, the company allegedly materially overstated the ANR to a total of more than 30,000 investors. After a large institutional investor complained to the company in April 2017, it notified investors of the misstatements and corrected the ANR in May 2017. In agreeing to a settlement, the company did not admit or deny the SEC’s findings, and the order acknowledges that the company has since instituted “a number of controls designed to prevent and detect similar errors in the future,” including new management supervision, quarterly reviews, and semi-annual testing.
Maryland files charges against title company for allegedly making unlicensed, usurious consumer loans
On April 11, the Maryland Attorney General announced an administrative proceeding taken against a title company, its owner, and related businesses for allegedly making unlicensed and usurious title loans secured by consumers’ motor vehicles. According to the AG’s charges, the defendants, among other things, allegedly engaged in unfair or deceptive trade practices by offering consumers high-interest, short-term title loans with typical annual interest rates of 360 percent. The AG contends that the loans offered by the defendants qualify as consumer loans under Maryland law and therefore are subject to state interest rate caps. Furthermore, the AG alleges that the defendants were never licensed by the Maryland Commissioner of Financial Regulation to make consumer loans in the state. The AG seeks an order compelling the defendants “to permanently cease and desist from making unlicensed and usurious consumer loans in Maryland, to pay restitution to all affected consumers, and to pay civil penalties.”
On April 16, the Arkansas governor signed HB 1944, which defines blockchain technology under the state’s Uniform Electronic Transactions Act (UETA). Under the act, “blockchain technology” is defined as “a shared, immutable ledger that facilitates the process of recording one or more transactions and tracking one or more tangible or intangible assets in a business network.” The act also provides definitions for “blockchain distributed ledger technology” and “smart contract” under the UETA. The act takes effect 90 days after adjournment of the legislature.
On April 18, the Financial Crimes Enforcement Network (FinCEN) announced a civil money penalty against an individual operating as peer-to-peer exchanger for willful violations of Bank Secrecy Act (BSA) money service business (MSB) requirements. According to FinCEN, the exchanger engaged in activities such as (i) advertising his intentions to purchase and sell bitcoin; and (ii) completing transactions using in-person cash payments, currency sent or received in the mail, or wire transfers through the use of a depository institution. These activities, FinCEN claimed, qualified him as a virtual currency exchanger, MSB, and a financial institution under the BSA. As such, the exchanger was required to register as a MSB with FinCEN, establish and implement an effective written anti-money laundering program, detect and file suspicious activity reports, and report currency transactions, which he failed to do. The order requires the exchanger to pay a $35,350 civil money penalty and permanently prohibits him from engaging in any activity that would qualify him as a MSB.
On April 18, the Oklahoma governor signed SB 720 to create the Oklahoma Small Lenders Act (the Act) and establish a framework to license and regulate small loan lenders in the state through the Department of Consumer Credit (ODCC). Beginning on January 1, 2020, any licensee under the Deferred Deposit Lending Act (DDLA) may begin an application under the Act and all licenses under the DDLA will be terminated and deemed expired on August 1, 2020. As of August 1, 2020, no lender may make a small loan covered by the Act unless they are properly licensed; and “small loan” is defined as an unsecured loan with a period between 60 days and 12 months that is fully amortized and payable in substantially equal periodic payments and contains no prepayment penalty. A licensee may only charge a maximum of 17 percent as a periodic interest rate, and the maximum aggregated principal loan amount of all small loans outstanding per customer is $1,500. Additionally, the Act outlines requirements for licensure, default procedures, reporting requirements, and penalties for violations.
On April 22, the Arizona governor signed HB 2674, a bill defining the term “guaranteed asset protection waivers” (GAP waivers) and clarifying that GAP waivers are not insurance and are thus exempt from the state’s insurance laws. The Act is effective 90 days after the state’s legislative session adjourns sine die.
On April 12, the Appellate Court of Illinois published an opinion affirming the dismissal of a consumer’s counterclaims against a lender in a lawsuit seeking to collect the consumer’s alleged debt from a store credit card. According to the opinion, in January 2017, the lender filed a small claims action seeking to collect credit card debt on which the consumer allegedly defaulted in July 2012. The consumer filed a putative class action counterclaim against the lender alleging, among other things, that the lender’s collection action violated the FDCPA and various Illinois laws because it was time-barred under the four-year statute of limitations period provided to enforce a sale of goods under Section 2-725 of the UCC. The lender moved to dismiss the counterclaims, alleging that its complaint was timely filed within the five-year statute of limitations period applicable to credit card agreements under Section 13-205 of the Illinois Code of Civil Procedure. The lower court granted the lender’s motion to dismiss, holding that the credit card agreement was governed by the five-year statute of limitations applicable to credit card agreements under Section 13-205 of the Illinois Code of Civil Procedure, rather than the four-year statute of limitations under the UCC’s sale of goods provisions. On appeal, the appellate court affirmed the lower court’s decision, rejecting the consumer’s argument that the UCC should apply to the agreement because the consumer could only use the credit card to purchase goods at a single retailer. Specifically, the appellate court held that the type of credit card was immaterial to the analysis and that Section 13-205 of the Illinois Code of Civil Procedure clearly controlled in this case because a tripartite relationship existed among the bank, the cardholder, and the merchant, and the payments made by the bank to the merchant pursuant to the cardholder agreement constituted a loan to the cardholder. As a result, the lender’s complaint was timely filed.
On April 23, the CFPB announced updates to its policy on Civil Investigative Demands (CIDs). According to the Bureau, the new policy is consistent with comments received in response to a 2018 Request for Information, which solicited public feedback on “how best to achieve meaningful burden reduction or other improvement to the CID processes while continuing to achieve the Bureau’s statutory and regulatory objectives” (previously covered by InfoBytes here). Going forward, CIDs will (i) provide additional information on potentially applicable provisions of law that may have been violated; (ii) specify business activities subject to Bureau authority; and (iii) “[i]n investigations where determining the extent of the Bureau’s authority over the relevant activity is one of the significant purposes of the investigation, staff may specifically include that issue in the CID in the interests of further transparency.”
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Buckley Webcast: The future of the Community Reinvestment Act
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Buckley Webcast: Amendments to the CFPB's proposed debt collection
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- APPROVED Webcast: State and SAFE Act licensing requirements for banks
- John C. Redding to discuss "TCPA compliance in the era of mobile" at the Auto Finance Risk Summit
- Buckley Webcast: The next consumer litigation frontier? Assessing the consumer privacy litigation and enforcement landscape in 2019 and beyond
- Buckley Webcast: Data breach litigation and biometric legislation
- Buckley Webcast: Trends in e-discovery technology and case law
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Douglas F. Gansler to discuss "Role of state AGs in consumer protection" at a George Mason University Law & Economics Center symposium