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Kansas enacts its Commercial Financing Disclosure Act
On April 12, Kansas enacted the Commercial Financing Disclosure Act in SB 345 (the “Act”) which will require the disclosure of certain commercial financing product transaction information, provide civil penalties for violations, and authorize enforcement by the attorney general. The Act will apply to any commercial loan, accounts receivable purchase transaction, and commercial open-end credit plan (when the transaction would be less than or equal to $500,000).
According to the Act, providers must disclose the total amount of funds furnished, and total amount dispersed, if that number is less than the amount furnished. Additionally, providers must disclose the total amount borrowers will owe the provider in that agreement, including the total cost to the borrower, as well as the manner, frequency, and amount of each payment. For each commercial financing agreement, only a single disclosure is necessary. If there are alterations to the financing arrangement, a new disclosure will not be mandated. Furthermore, providers will not be required to issue a new disclosure with every purchase of accounts receivables under the agreement. Moreover, brokers of such transactions are prohibited from collecting an advance fee from a business, making any false representations, or omitting any material facts during the sale of the services.
The Act will exempt certain depository institutions, commercial financing transactions secured by real property or a lease, and providers that made five or fewer commercial financing transactions in Kansas in one year, among other things.
Violations of the Act will be subject to a civil penalty of $500 per individual violation and the total penalty for multiple aggregated violations cannot exceed $20,000. If a person continues to violate the Act after receiving a written warning from the attorney general, the penalty will increase to $1,000 per violation. The maximum penalty for multiple aggregated violations in this scenario will be $50,000. The Act will not grant individuals the right to sue based on compliance or non-compliance with its provisions; there is no private right of action. Violations of the Act will not affect the enforceability or validity of the underlying agreement. The authority to enforce the Act will not be given exclusively to the attorney general.
Kansas updates UCCC provisions including credit card surcharges
On March 29, the Governor of Kansas signed into law HB 2247, a comprehensive bill that updated UCCC provisions in an effort to regulate the credit industry more efficiently, and moved provisions from the UCCC to the Kansas Mortgage Business Act, among other things. The bill amended provisions relating to credit card surcharges—allowing retailers and other persons to impose a surcharge on a customer who uses a credit card payment if such retailer or person provided a clear and conspicuous disclosure of the surcharge amount at the point of entry or sale or in advance of the transaction. The bill nearly tripled the “threshold amount” on certain consumer loans and leases from $25,000 to $69,500. The bill also clarified license requirements, among other things. HB 2247 will go into effect on July 1.
Fed announces enforcement action against Kansas bank for operational deficiencies
On September 5, the Fed announced a cease and desist order (the “order”) against a Kansas bank holding company and its subsidiary bank (collectively, the “bank”) for having significant operational deficiencies, including deficiencies related to staffing, internal controls, credit risk management, lending and credit administration, capital, information technology and information security, books and records, regulatory reporting, liquidity and funds management, earnings, interest rate risk management, third-party risk management, and other deficiencies such as compliance with federal laws related to AML/BSA requirements.
The order directs the bank to, among other things, (i) strengthen board oversight; (ii) engage a third party to conduct an assessment of the bank’s corporate governance and staffing; (iii) improve lending and credit administration policies and procedures; (iv) correct the identified information technology and information security deficiencies; (v) revise its allowance for credit losses methodology to comply with supervisory guidance; (vi) enhance interest rate risk management practices; (vii) improve internal controls; (viii) submit a written plan to maintain sufficient capital; (ix) enhance liquidity risk management; and (x) improve the bank’s earnings and overall condition. The order also directs the Bank to improve its BSA/AML compliance program and internal audit program, and to take all necessary steps to correct all violations of law or regulation and to ensure future compliance.
Kansas enacts financial institutions information security act
On April 20, the Kansas governor signed SB 44 to enact the Kansas financial institutions information security act. The Act establishes information security standards for covered entities, and applies to credit service organizations, mortgage companies, supervised lenders, money transmitters, trust companies, and technology-enabled fiduciary financial institutions. A covered entity will be required to develop, implement, and maintain a cybersecurity system to protect consumer information, and must ensure its information security program is maintained as part of its books and records in compliance with established record retention requirements. Additionally, the state bank commissioner is granted the authority to adopt “all rules and regulations necessary to govern and administer the [Act’s] provisions.” The commissioner is also given an assortment of enforcement tools to administer the Act, including: conducting routine examinations; investigating a covered entity’s operations; issuing subpoenas; assessing fines and civil penalties not to exceed $5,000 per violation, as well as investigation and enforcement costs; censuring registered or licensed covered entities; entering into memorandums of understanding or consent orders; revoking, suspending, or refusing to renew the registration or license of covered entities; issuing cease-and-desist orders; filing for injunctions; or issuing emergency orders to prevent harm to consumers. The Act takes effect July 1.
8th Circuit pauses student debt relief program
On November 14, the U.S. Court of Appeals for the Eighth Circuit granted an emergency motion for injunction pending appeal filed by state attorneys general from Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina to temporarily prohibit the Secretary of Education from discharging any federal loans under the agency’s student debt relief plan (announced in August and covered by InfoBytes here). Earlier in October, the 8th Circuit issued an order granting an emergency motion filed by the states, which requested an administrative stay prohibiting the discharge of any student loan debt under the cancellation plan until the appellate court had issued a decision on the states’ motion for an injunction pending an appeal. (Covered by InfoBytes here.) The October order followed a ruling issued by the U.S. District Court for the Eastern District of Missouri, which dismissed the states’ action for lack of Article III standing after concluding that the states—which attempted “to assert a threat of imminent harm in the form of lost tax revenue in the future”— failed to establish imminent and non-speculative harm sufficient to confer standing.
In granting the emergency motion, the appellate court disagreed with the district court’s assertion that the states lacked standing. The 8th Circuit reviewed whether the state of Missouri could rely on any harm the Missouri Higher Education Loan Authority (MOHELA) might suffer as a result of the Department of Education’s cancellation plan. The appellate court found that the relationship between MOHELA and the state is relevant to the standing analysis, especially as Missouri law specifically directs MOHELA (which receives revenue from the student loan accounts it services) to distribute $350 million into the state’s treasury. As such, “MOHELA may well be an arm of the State of Missouri” under this reasoning, the appellate court wrote, adding that several district courts have concluded that MOHELA is an arm of the state. However, regardless of whether MOHELA is an arm of the state, the resulting financial impact due to the cancellation plan would, among other things, affect the state’s ability to fund public higher education institutions, the 8th Circuit noted. “Consequently, we conclude Missouri has shown a likely injury in fact that is concrete and particularized, and which is actual or imminent, traceable to the challenged action of the Secretary, and redressable by a favorable decision,” the appellate court wrote, adding that since one party likely has standing it does not need to address the standing of the other states. The appellate court also determined that “the equities strongly favor an injunction considering the irreversible impact the Secretary’s debt forgiveness action would have as compared to the lack of harm an injunction would presently impose.” The 8th Circuit explained that it considered several criteria, including the fact that the collection of student loan payments and the accrual of interest have both been suspended. The Missouri attorney general released a statement applauding the 8th Circuit’s decision.
The 8th Circuit’s decision follows a recent ruling issued by the U.S. District Court for the Northern District of Texas, which found that the student loan forgiveness program is “an unconstitutional exercise of Congress’s legislative power.” (Covered by InfoBytes here.)
Kansas amends mortgage licensing provisions
On April 7, the Kansas governor signed HB 2568, which updates the Kansas Mortgage Business Act by amending certain mortgage licensing provisions. Among other things, the bill: (i) authorizes certain mortgage business to be conducted at remote locations; (ii) establishes procedures and requirements for license and registration renewal or reinstatement; (iii) adjusts surety bond requirements; (iv) provides for evidence of solvency and net worth; and (v) requires notice to the Commissioner when adding or closing any branch office. Additionally, the bill replaces the current requirements for licenses and renewal applications and also sets the expiration date for licenses and registration on December 31 of each year. A license or registration will be renewed without assessment of a late fee by filing a complete renewal application and nonrefundable renewal fee with the Commissioner by December 1 of each year. The bill is effective July 1.
HUD announces disaster relief for homeowners in several states
On January 12, HUD announced disaster assistance for certain areas in Missouri impacted by severe storms, straight-line winds, and tornadoes in December 2021. The disaster assistance supplements state, tribal, and local recovery efforts in specific counties, and provides foreclosure relief and other assistance to affected homeowners following President Biden’s major disaster declaration on January 11. According to the announcement, HUD is providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and is making FHA insurance available to victims whose homes were destroyed or severely damaged, such that “reconstruction or replacement is necessary.” HUD’s Section 203(k) loan program allows individuals who have lost homes to finance the purchase of a house or refinance an existing house along with the costs of repair, through a single mortgage. The program also allows homeowners with damaged property to finance the rehabilitation of existing single-family homes. HUD also announced it is allowing applications for administrative flexibility waivers for Community Planning and Development Grantees and public housing authorities. Recently, HUD announced it will provide the same foreclosure relief and assistance to Alabama, Arkansas, Kansas, and Washington state homeowners affected by severe storms, flooding, tornados, and wildfires in those states. (See press releases here, here, here, and here).
Kansas AG fines companies for unlawful data disposal
On November 1, the Kansas attorney general ordered three national companies that manage business documents to pay fines totaling nearly $500,000 for the alleged unlawful disposal of records containing consumers’ personal information. According to the Kansas AG, the companies violated the Kansas Consumer Protection Act and the Wayne Owen Act by repeatedly disposing of records in unsecured trash receptacles without “rendering the personal information unreadable or undecipherable.” By engaging in these actions, the AG stated, the companies failed to comply with the requirements that companies implement and maintain reasonable policies and procedures and exercise reasonable care to protect personal information from unauthorized access and use, and take reasonable steps to destroy records containing personal information when they are no longer needed. Under the terms of the consent judgments (see here, here, and here), the companies must pay the fine, implement measures to ensure the proper disposal of documents, conduct employee training on the proper handling and disposal of personal information, and evaluate their information security programs and policies to ensure personal information is protected.
Kansas extends orders relating to the Covid-19 pandemic
On September 10, the Kansas governor issued another executive order delaying the sunset date of several existing executive orders relating to Covid-19 to January 26, 2021, or until the statewide state of disaster emergency relating to Covid-19 expires, whichever is earlier, with some exceptions (previously covered here). Among others, the executive order delays the sunset date for the order halting certain foreclosures and evictions (previously covered here), the order extending professional and occupational licenses (previously covered here and here), as well as the order temporarily allowing remote notarizations (previously covered here).
Kansas extends remote work guidance for certain licensees
On August 27, the Kansas Office of the State Bank Commissioner extended its remote work guidance, previously covered here and here, for mortgage companies, mortgage loan originators, supervised loan licensees, credit services organizations, money transmitters, and credit notification registrants. Licensed or registered individuals and entities are permitted to work from their residences or a company designated location, provided certain requirements are met, through December 31, 2020.