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On February 13, the Arkansas Governor approved SB 187, which amends the state’s Uniform Money Services Act as it relates to money transmission licensees and currency exchanges. Among other things, the amendments (i) revise surety bond and net worth amounts money transmission licensees are required to maintain; (ii) specify application and renewal requirements and deadlines; (iii) permit the use of international financial reporting standards (in addition to generally accepted accounting principles) to compute the value of permissible investments licensees are required to maintain; and (iv) repeal certain savings and transitional provisions. The amendments take effect 90 days after adjournment.
On February 7, the Ohio Court of Appeals reversed a state trial court’s decision in favor of a national bank, holding that the bank failed to prove it had the right to charge interest exceeding the statutory limit on a credit card account. At trial, the bank sought payment of the consumer’s store credit card debt it acquired in a merger. The consumer argued that the bank had no standing to sue because it failed to prove ownership of the store credit card account. The trial court denied the consumer’s motion to dismiss and granted the bank’s motion for a directed verdict after trial.
The appeals court agreed that, even though the bank was unable to establish that it acquired the consumer’s account, it had standing to bring its collection action by virtue of its own credit card agreement with the consumer and the consumer’s continued use of the card. But because the bank could only produce periodic statements that included the claimed interest rate, it failed to establish that the consumer “assented to any explicitly set forth interest rate over the statutory limit.” Thus, the trial court “erred in granting [the bank’s] motion for a directed verdict as to the precise amount of damages awarded,” and the appeals court remanded with instructions to determine whether Ohio law, as argued by the consumer, or South Dakota law, as argued by the bank, should be applied to verify the applicable statutory interest rates.
On February 8, the U.S. Court of Appeals for the 1st Circuit reversed the district court’s dismissal of a Massachusetts homeowners’ action alleging that the mortgage holder failed to comply with the notice requirement in their mortgage before foreclosing on their property. The district court dismissed the action after concluding that the mortgage holder’s notice satisfied the notice requirements by including the default amount, a cure date, and the fact that failure to cure could result in acceleration. The homeowners appealed, arguing that the mortgage holder failed to strictly comply with the provision’s requirements because the notice provided did not include the conditions and time limitations associated with reinstatement after acceleration that were required by a separate provision in the mortgage.
On appeal, the 1st Circuit reviewed the notice under Massachusetts law, which requires mortgage holders to strictly comply with two types of mortgage terms: (i) ones “directly concerned with the foreclosure sale. . .” and (ii) ones “prescribing actions the mortgagee must take in connection with the foreclosure sale—whether before or after the sale takes place.” In overturning the District Court’s dismissal, the 1st Circuit noted that, because the notice did not contain the additional conditions and time limitations associated with reinstatement from the separate provision, dismissal was inappropriate.
On February 14, the Conference of State Bank Supervisors (CSBS) agreed to implement specific recommendations from the CSBS Fintech Industry Advisory Panel. The Advisory Panel, which was formed in 2017 and consists of 33 fintech companies, works to “identify and remove unnecessary pain points in the multistate experience of fintechs and other nonbanks operating regionally or nationwide while improving financial supervision.” Of the 19 recommended actions by the Advisory Panel, CSBS supported 14, including: (i) creating a 50-state model law to license money services businesses; (ii) creating a standardized call report for consumer finance businesses; (iii) expanding the use of the Nationwide Multistate Licensing System across all license types; and (iv) building an online database of state licensing and fintech guidance. Recommendations related to small business lending were among the items saved for future action or implementation.
On February 13, the U.S. District Court for the District of Nevada rejected a cloud communication company’s motion to dismiss a TCPA class action. According to the opinion, the plaintiffs’ alleged the company “collaborated as to the development, implementation, and maintenance of [a] telemarketing text message program,” which was used by a theater production company to send text messages without prior consent in violation of the TCPA and the Nevada Deceptive Trade Practices Act (NDTPA). The company moved to dismiss the claims, arguing, among other things, that it was not liable under the TCPA because it was a “transmitter” and not an “initiator” of communications. Citing the FCC’s previous determination that, under certain circumstances transmitters may be held liable under the TCPA, the court rejected this argument, concluding that the company took steps necessary to send the automated messages and that its “alleged involvement was to an extent that [it] could be considered to have initiated the contact.” Moreover, the court determined the plaintiff sufficiently alleged injury under the TCPA, concluding that violations of privacy and injury to the “quiet use and enjoyment of [a] cellular telephone” are consistent with the purpose of the TCPA. The court did dismiss the plaintiff’s NDTPA claims, however, holding that the transaction did not involve the sale or lease of goods or services as the law requires.
On February 8, the U.S. District Court for the Western District of North Carolina dismissed a consumer’s state law claims under the North Carolina Unfair and Deceptive Trade Practices Act and civil conspiracy claims because they were preempted by the FCRA. According to the opinion, which affirmed and adopted a Magistrate Judge’s recommendation, and also allowed the consumer’s FDCPA claims to proceed, the consumer alleged the furnisher improperly filed delinquencies on his credit report, wrongfully refused to remove the delinquencies, and improperly handled the investigation of his claims. The consumer had objected to the Magistrate’s conclusions with regard to the state law claims, arguing that the FCRA preemption was not applicable because the unfair and deceptive conduct occurred after the furnisher allegedly reported inaccurate information to the credit bureaus. The district court rejected this argument, concluding that the state law claims “run  into the teeth of the FCRA preemption provision” and are “squarely preempted” by the federal statute.
On February 11, a coalition of 22 Democratic state Attorneys General responded to the CFPB’s proposed policy on No-Action Letters (NAL) and a new federal product sandbox, pushing back on the Bureau’s efforts to provide relief to financial institutions looking to implement new consumer financial products or services. (InfoBytes coverage on the proposal available here.) The Attorneys General argued that the Bureau “has no authority to issue such sweeping immunity absent formal rulemaking” and urged the Bureau to rescind the proposals, which the Bureau had stated were exempt from the notice and comment procedures of the Administrative Procedures Act.
In addition to challenging the Bureau’s authority to establish these policies, the Attorneys General asserted specific concerns with the NAL proposal, including (i) the fact that the proposed NAL policy would make NALs binding on the CFPB indefinitely; (ii) the streamlined application process and 60-day decision window, potentially causing the Bureau to render hasty, uninformed decisions; and (iii) the proposed NAL policy’s purported deviations from the policies of other federal agencies, such as the SEC.
As for the new product sandbox, the Attorneys General viewed the proposed policy as “even more troubling” than the NAL proposal, as it provides immunity from “enforcement actions by any Federal or State authorities, as well as from lawsuits brought by private parties.” The Attorneys General rejected the Bureau’s contention that the statutory safe harbors in TILA, ECOA, and the EFTA grant the authority to provide the broad enforcement relief and accused the Bureau of “abandoning its critical role in monitoring the risk that new and emergency technologies post to consumers in the financial marketplace.”
On February 11, the U.S. District Court for the District of New Jersey denied a motion to dismiss a putative class action against a debt collector and its legal counsel, holding that the plaintiff debtor made a plausible claim under the FDCPA that the debt collector was required by New Jersey’s Consumer Financing Licensing Act (NJCFLA) to be licensed as a consumer lender. According to the opinion, the plaintiff had defaulted on his credit card debt and, nine years later, received a letter from the defendant’s legal counsel seeking payment of the balance due. The plaintiff filed a proposed class action arguing that the letter violated the FDCPA because the debt collector had not been licensed with the New Jersey Department of Banking and Insurance prior to purchasing the debt, and therefore lacked the authority to collect on the debt. The defendant debt collector moved to dismiss the complaint, claiming, among other things, that it was exempt from the licensing requirements because it did not qualify as a “consumer loan business” under the NJCFLA. The debt collector argued that it never exceeded the state’s interest rate cap and therefore was exempt from the licensing requirements. However, the plaintiff argued that the defendant’s licensing violation arose from a second part of the “consumer loan business” definition, under which the licensing requirements apply because the defendant “directly or indirectly engag[es] . . . in the business of buying. . . notes.” The district court agreed with the plaintiff, stating that “[t]his statutory language does not narrow the category of lenders falling under that definition according to the interest rates that they charge.”
On February 11, a bipartisan group of 29 state Attorneys General, the District of Columbia Attorney General, and an official from the Hawaii Office of Consumer Protection, responded to the FTC’s request for comment on whether the agency should make changes to its identity theft detection rules (the Red Flags Rule and the Card Issuers Rule), which require financial institutions and creditors to take certain actions to detect signs of identity theft affecting their customers. (Covered by InfoBytes here.)
In their response, the Attorneys General urge the FTC not to repeal the Rules, arguing that it “would place consumers at greater risk of identity theft, especially consumers in states that have not enacted” laws that complement the Rules. Instead, the response letter requests the FTC modify the Rules to “ensure their continued relevance” and “keep pace with the ingenuity of identity thieves.” The suggestions include: (i) that notices of changes to email addresses and cell phone numbers be sent to both the prior and updated addresses and phone numbers, an expansion of the current use of mailing addresses; (ii) the encouragement of more current forms of authentication, including multi-factor authentication, to replace examples which imply that knowledge-based authentication by itself is sufficient; and (iii) the addition of new suspicious activity examples related to the use of an account, such as a covered account accessed by unknown devices or IP addresses, an unauthorized user unsuccessfully trying to guess account passwords through multiple attempts, and attempts by foreign IP addresses to access multiple accounts in a close period of time.
D.C. act provides eviction and foreclosure relief to federal employees and contractors impacted by shutdown
On February 6, the Mayor of the District of Columbia signed Act 23-5 (B23-0080) to protect federal workers, contractors, and employees of the District of Columbia Courts from eviction and foreclosure during federal government shutdowns. Among other things, the D.C. Superior Court will have the ability to grant motions to stay foreclosure and eviction proceedings for eligible impacted workers or their household members. The temporary stay would run until the earlier of “(i) 30 days after the effective date of an appropriations act or continuing resolution that funds a federal worker’s government agency; or (ii) 90 days after the date of the federal worker’s first unpaid payday” for government employees, with analogous terms for contractors. The act is effective immediately and expires on May 7.
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jessica L. Pollet to discuss "Law & compliance speedsmarts" at the American Financial Services Association Law & Compliance Symposium
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- 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