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California Department of Business Oversight highlights risks of exempt securities offerings
On May 26, the California Department of Business Oversight issued an investor alert on exempt securities offerings, aka “private placements,” during Covid-19. The alert outlines the reasons why such offerings carry a higher risk of fraud and offers suggestions for potential investors to protect themselves.
California Department of Business Oversight issues guidance to finance lenders, PACE administrators, deferred deposit originators, and premium finance companies
On April 3, the California Department of Business Oversight (DBO) issued guidance to finance lenders, Property Assessed Clean Energy (PACE) administrators, deferred deposit originators, and premium finance companies requesting such licensees work with their customers by offering payment plans and extensions at no additional cost to the customer. The DBO also requests that premium finance companies grant a grace period similar to the grace periods being granted by many insurance companies in order to prevent insureds from experiencing an interruption in insurance coverage.
California DBO issues guidance on securities and franchise filings
On March 22, the California Department of Business Oversight issued notice urging securities and franchise filers to submit filings electronically and request waivers of automatic effectiveness for paper filings. The notice also provides that effective immediately the DBO will accept use of e-signature software in lieu of notarization and will waive the additional filing fee for renewals filed after franchise registration has lapsed through June 30.
California Department of Business Oversight issues guidance to financial institutions
On March 22, the California Department of Business Oversight (DBO) issued guidance to financial institutions whose customers may be suffering from loss of income or other financial hardship as a result of the Covid-19 pandemic. As directed by Governor Newsom’s Executive Order N-28-20 (previously discussed here), the DBO encourages financial institutions to adopt the following practices, among others, during the state of emergency:
- Waiving certain fees (e.g., ATM fees, overdraft fees, late payment fees, early withdrawal penalties)
- Increasing ATM daily cash withdrawal limits;
- Easing restrictions on cashing out-of-state and non-customer checks;
- Increasing credit card limits for creditworthy borrowers; and
- Offering payment accommodations, such as allowing borrowers to defer or skip some payments or extending the payment due date, which would avoid delinquencies and negative credit bureau reporting caused by Covid-19-related disruptions.
The guidance provides that prudent efforts to modify the terms on existing loans for affected customers will not be subject to examiner criticism. The guidance provides additional insight on financial condition review, supervisory response, and regulatory relief, regulatory reporting requirements, alternative service options for customers, and the permissibility of holding certain meetings (e.g., annual shareholder meetings, board of director meetings) via videoconference or teleconference.
California Department of Business Oversight issues guidance for lenders
On March 22, the California Department of Business Oversight (DBO) issued guidance directed at escrow agents, finance lenders and servicers, student loan servicers, residential mortgage lenders and servicers, and MLOs whose customers may be suffering from loss of income or other financial hardships as a result of the Covid-19 pandemic. The guidance states that the DBO will not take enforcement action against licensees for operating unlicensed branches if, during the state of emergency, employees conduct activities from home that normally would require a branch license, provided that appropriate measures are taken to protect consumers and their data. The DBO also will not criticize student loan servicers or licensees sponsoring MLOs who permit their respective employees to work from home, provided that certain conditions are met. While the foregoing applies to Escrow Law licensees, the DBO notes that it cannot modify any restrictions that may be imposed by the Fidelity Corporation or the licensee’s surety bond. The DBO offers additional recommendations to licensees, including offering payment accommodations to avoid delinquencies and negative credit bureau reporting, easing terms for new mortgage loans to affected borrowers, and exercising discretion in determining which of their services and transactions are “essential services” for the purposes of “stay-in-place” or “shelter-in-place” orders. The DBO also noted that it will not criticize any late mortgage recordation that result from the closure of a county recorder’s office due to Covid-19.
California DBO seeks to revoke auto title lender’s license
On March 19, the California Department of Business Oversight (DBO) filed an administrative action to revoke the license and void loans made by a Southern California auto title lender for allegedly violating state lending laws. According to the DBO announcement, the lender allegedly, among other things, (i) charged consumers more interest than permitted by state law; (ii) failed to consider the borrower’s ability-to-repay; and (iii) engaged in “false and misleading” advertising. Specifically, DBO alleges that, in two separate examinations, it determined the lender included DMV fees in borrowers’ principal loan amounts to bring the loans above $2,500. DBO alleges these loans carried interest rates over 100 percent, while the state law cap is 30 percent for loans under $2,500. DBO also alleges the lender violated state law by failing to report the profits it made from a “duplicate-key fee” and made loans from unlicensed locations.
In addition to the formal accusation, the DBO also has commenced an investigation to determine whether the more than 100 percent interest rates that the lender charges on most of its auto title loans may be unconscionable under the law.
Payday lender settles with California DBO for interest rate cap avoidance
On March 12, the California Department of Business Oversight (DBO) announced a $160,000 settlement with the California subsidiary of a payday lender for allegedly adding improper fees to installment loan principle amounts in order to avoid the California Finance Law’s (CFL) interest rate cap. The settlement resulted from a DBO examination in which the DBO issued a finding that: (i) the lender failed to exclude fees payable to the California DMV when calculating the principal amount of certain vehicle title loans; (ii) excluding the DMV fees, the bona fide principal amount of the loans at issue was less than $2,500; and (iii) the loans were, therefore, subject to the CFL interest rate cap on loans with a principal amount of less than $2,500, which was exceeded on 591 loans. Without admitting to any wrongdoing, the lender agreed to pay an administrative penalty of approximately $78,000 to the DBO and to refund approximately $82,000 to allegedly affected borrowers.
California Department of Business Reaches $1.1 Million Settlement With South Carolina-Based Mortgage Lender and Servicer
The California Department of Business Oversight (DBO) announced on December 11 that it had reached a $1.1 million settlement with a South Carolina-based mortgage lender and servicer to resolve allegations that the company (1) violated California’s statutory restriction on per diem interest and (2) serviced loans without a California license. This settlement marks the second time in five years that examiners discovered alleged per diem overcharges in the company’s loans. Under California law, lenders are prohibited from charging interest on mortgage loans prior to the last business day that immediately precedes the day the loan proceeds are disbursed. In addition, it is a violation of state law to service residential mortgage loans without obtaining proper licensure.
According to the terms of the settlement—which resolves violations identified during a 2016 supervisory examination—the company must: (i) refrain from loan servicing activities until licensed by the state; (ii) pay $1 million in penalties to DBO for past violations; (iii) pay $125 for each additional violation identified by an independent audit of its loan originations; and (iv) issue per diem interest refunds totaling more than $141,000 to at least 1,347 borrowers. The company has also agreed to revise its policies and procedures to prevent future violations of California law.
California Department of Business Reaches $1.4 Million Settlement with Michigan-Based Mortgage Lender and Servicer
On April 10, the California Department of Business Oversight (DBO) announced a settlement with a California-licensed mortgage lender and servicer—whose principal place of business is based in Michigan—resolving allegations that the company violated California’s statutory restriction on per diem interest. California law prohibits lenders from “charging interest on mortgage loans prior to the business day that immediately precedes the day the loan proceeds are disbursed.” Pursuant to the consent order, the allegations against the company arose from two regulatory examinations conducted by DBO in 2011 and 2013, whereby the company—in order to avoid an enforcement action—agreed to cooperate fully with DBO’s request for audits, to refund per diem overcharges, and to consent to the issuance of the final order to pay refunds, penalties, and discontinue further violations. The terms of the consent order include $293,127 in refunds previously provided to approximately 3,400 borrowers for loans funded between August 2011 and May 2015, as well as future restitution to additional borrowers identified in required self audits of loans made between from June 2015 through February 2018. The order further requires the company to pay an additional $1.1 million in penalties for identified overcharges, as well as $125 for each additional violation discovered in the self audits.
California Department of Business Reaches $225 Million Settlement with Servicing Company
On February 17, the California Department of Business Oversight (DBO) announced a settlement with a national mortgage servicer, resolving allegations that the company committed numerous violations of state and federal laws and regulations. The allegations arose from examinations of the company’s servicing practices by a third-party auditor. The examinations were conducted pursuant to a January 23, 2015 consent order entered into by the DBO and the company, and covered the period of January 1, 2012 through June 30, 2015. The 2017 consent order requires the company to pay $20 million in borrower restitution, mandates that the company provide borrowers with $198 million of debt forgiveness through loan modifications over three years, and imposes $5 million in penalties, attorney’s fees, and costs. However, the terms of the order also restore the company’s ability to service new California mortgages.