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Iowa enacts new money transmission provisions
On April 10, Iowa’s governor signed into law HF 2262 (the “Act”) relating to money transmission services. The Act will exempt a person appointed as an agent of a payor for purposes of providing payroll processing services from licensure, provided that their agreement and services meet certain conditions. The Act will also allow the superintendent to suspend or revoke a licensee’s license, should they, among other things: (i) violate the Act; (ii) fail to cooperate with an examination or investigation conducted by the superintendent; (iii) engage in willful misconduct or blindness and, which leads to a conviction of an authorized delegate for violating a state or federal anti-money laundering statute, or violates the Act, a rule adopted under the Act, or an order issued under the Act; or (iv) engage in an unsafe or unsound practice. Further, the Act will detail different scenarios in which the superintendent may pursue an enforcement action. For instance, if the superintendent determined any violations were “likely to cause immediate and irreparable harm to the licensee, the licensee’s customers, or the public, or cause insolvency” the superintendent may issue a cease and desist order. Finally, the Act will provide guidelines for investigations, civil penalties, criminal penalties, and administrative proceedings. The Act became effective upon enactment and will apply retroactively to July 1, 2023.
FDIC OIG confirms board oversight and liquidity issues led to a bank’s failure
On March 25, the Office for the Inspector General (OIG) for the FDIC issued a report on a 2023 bank failure, finding that the bank’s failure netted a $14.8 million estimated loss to the Deposit Insurance Fund (“DIF”), but that the failure did not warrant a formal evaluation of the FDIC’s supervision of the failed bank in the form of an In-Depth Review. As defined by the FDIC, the DIF was created to ensure deposits, protect depositors, and resolve failed banks. Any DIF loss incurred under $50 million would require the OIG to review and determine if any unusual circumstances exist that may warrant an In-Depth Review; the OIG did not find any unusual circumstances here.
In November 2023, the FDIC was appointed as a receiver of a bank after its closure by the Iowa Division of Banking. The OIG noted that the bank failed after “significant deterioration” of the bank’s loan portfolio and operating losses stressed its liquidity as a result of bank board issues and management lax lending practices, as well as the failure to properly administer large commercial trucking relationships.
While conducting the bank review, the OIG considered four factors. First, the OIG considered the magnitude of the DIF loss in relation to the total assets of the failed bank. The OIG found the relative loss was 23 percent (noted as consistent in the last five years). Second, the OIG reviewed how effective the FDIC’s supervision addressed the issues. The OIG found the FDIC’s supervision “identified and effectively addressed” the issues that led to the bank’s failure. Third, the OIG considered any indicators of fraudulent activities that contributed to the DIF loss. The OIG found that while the examiners identified conflicts of interest in bank loans, they did not “significantly contribute” to the DIF loss. Last and fourth, the OIG reviewed any other relevant conditions contributing to the bank’s failure and found none.
Iowa modernizes money transmission provisions
The Iowa governor recently signed HF 675 to revise certain provisions of the Uniform Money Transmission Modernization Act. The Act is designed to eliminate unnecessary regulatory burden and harmonize the licensing and regulation of money transmitters with other states. Among other things, the Act defines terms for when a state money services business (MSB) license is required and adds a process for joint multistate examination and supervision of MSB licensees. The Act also outlines several exemptions, including federally insured depository institutions and certain persons appointed as an agent of a payee who collect and process payments from a payor to the payee for goods or services (other than money transmission itself).
With respect to licensing provisions, the Act states that a person shall not engage in the business of money transmission unless they are licensed. New provisions modify the licensing process, including by requiring that applications be approved 121 days after completion, unless denied or approved earlier by the superintendent. The license will take effect the first business day after expiration of the 120-day period (although the superintendent may for good cause extend the application period). The Act also outlines licensing application renewal procedures, requirements for maintaining licensure, processes for person(s) seeking to acquire control of a licensee or seeking to change key individuals, authorized delegate provisions, net worth and surety bond criteria, permissible investments, and reporting and financial condition requirements, among other criteria. The Act further specifies that a person who engages in the business of money transmission on behalf of a person not licensed under the chapter “provides money transmission to the same extent as if the person were a licensee, and shall be jointly and severally liable with the unlicensed or nonexempt person.” The Act takes effect July 1.
Iowa becomes sixth state to enact comprehensive privacy legislation
On March 28, the Iowa governor signed SF 262, establishing a framework for controlling and processing consumers’ personal data in the state. Iowa is now the sixth state in the nation to enact comprehensive consumer privacy measures, following California, Colorado, Connecticut, Virginia, and Utah (covered by Special Alerts here and here and InfoBytes here, here, and here).
- Consumer rights. Iowa consumers will have the right to, among other things, (i) confirm whether their personal data is being processed and access their data; (ii) delete their data; (iii) obtain a copy of their personal data processed by a controller (“except as to personal data that is defined as personal information pursuant to section 715C.1 that is subject to security breach protection”); and (iv) opt out of the sale of their data.
- Controller responsibilities. The Act requires controllers—the persons that determine the purpose and means of processing personal data—to respond to consumers’ requests free of charge within 90 days (the response period may be extended an additional 45 days under extenuating circumstances). A controller must also provide a consumer, without undue delay, of its justification should it decline to take action regarding the consumer’s request, as well as instructions for appealing the decision. Controllers are also required to implement reasonable data security practices to protect the confidentiality, integrity, and accessibility of personal data, and must not process collected sensitive data without notifying the consumer and allowing for the opportunity to opt out of such processing (or in the case of data involving a minor, without processing such data in accordance with the Children’s Online Privacy Protection Act). Controllers may not violate state and federal laws that prohibit discriminatory practices when processing personal data and may not discriminate against a consumer for exercising any of the provided consumer rights. Contacts that purport or waive or limit consumer rights shall be deemed void and unenforceable.
- Disclosures. Controllers are required to provide consumers “a reasonably accessible, clear, and meaningful privacy notice” that outlines the categories of personal data to be processed, the purpose for processing the data, and how consumers may submit requests to exercise their personal rights (a controller may not require a consumer to create a new account to exercise consumer rights). The privacy notice must also outline the categories of data that may be shared with third parties, as well as the categories of applicable third parties, and clearly disclose when personal data is being sold or used in targeted advertising to allow a consumer the right to opt out of such activity.
- Processor duties. Processors shall help controllers fulfill their obligations under the Act. A contract established between a controller and a processor will “govern the processor’s data processing procedures with respect to processing performed on behalf of the controller,” and must “clearly set forth instructions for processing personal data, the nature and purpose of processing, the type of data subject to processing, the duration of processing, and the rights and duties of both parties.”
- Exemptions and limitations. The Act also outlines various processing exemptions, including those related to pseudonymous data, and addresses certain actions that a controller or processor is able to take with respect to complying with federal, state, or local laws, investigations, or law enforcement agency inquiries, among others. The Act also limits the collection of personal data to what is adequate, relevant and necessary in relation to the purposes for which such data is processed, and requires controllers to implement data security protection practices.
- Enforcement. Although the Act explicitly prohibits its use as a basis for a private right of action, it does grant the state attorney general exclusive authority to enforce the law. Additionally, upon discovering a potential violation of the Act, the attorney general must give the controller or processor written notice and 90 days to cure the alleged violation before the attorney general can file suit. Should the controller or processor continue to violate the Act, the attorney general may seek an injunction and civil penalties of up to $7,500 for each violation.
The Act takes effect January 1, 2025.
Iowa establishes refund requirements for voluntary debt cancellation coverage
On March 22, the Iowa governor signed HF 133 relating to refund payments made in connection with motor vehicle debt cancellation coverage. The act provides that if a creditor is a financial institution, as defined in the Iowa consumer credit code or the Gramm-Leach-Bliley Act, and purchases a retail installment contract with voluntary debt cancellation coverage, “the only obligation of the creditor upon prepayment in full shall be to notify the motor vehicle dealer within thirty days of the prepayment.” It is the motor vehicle dealer’s responsibility to promptly determine whether a consumer is eligible to receive a refund of any voluntary debt cancellation coverage. Any refunds must be issued directly to the consumer within 60 days of the dealer receiving notice of prepayment from the creditor. The act is effective 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.)
8th Circuit says bank is entitled to proceeds from condo sale
On June 24, the U.S. Court of Appeals for the Eighth Circuit affirmed a trial court’s decision that a plaintiff bank is entitled to the proceeds from the sale of a condominium despite the defendant’s ex-husband’s bankruptcy and an outstanding balance owed to the bank on a business loan. When the defendant signed and initialed a mortgage securing the financing of a condominium, she consented to her ex-husband’s execution of the note but was not a signatory. The mortgage contained three provisions, including (i) a choice-of-law provision specifying that Iowa law governed the mortgage; (ii) a homestead waiver, in which the defendant and her ex-husband “waive[d] all appraisement and homestead exemption rights relating to” the condominium, except as prohibited by law; and (iii) a future advances clause or “dragnet clause,” which granted the plaintiff a security interest in the mortgage that covered future funds the ex-husband may borrow. The plaintiff initiated litigation against the defendant seeking a declaratory judgment that the defendant’s portion of the escrowed sale proceeds was subject to the mortgage’s future advances clause, and that the plaintiff could apply the proceeds to her ex-husband’s business loan. The trial court concluded that the bank was entitled to the proceeds.
On appeal, the 8th Circuit concluded that the mortgage’s future advances clause encompassed and secured the defendant’s ex-husband's business loan. Among other things, the appellate court rejected the defendant’s arguments that (i) the plaintiff failed to make a prima facie case that it was entitled to the condo sale proceeds because it purportedly “did not prove the proceeds comported with the mortgage’s maximum obligation limit clause (finding “no miscarriage of justice in declining to analyze her claim”); and (ii) the mortgage forced “her to waive her homestead rights in contravention of public policy” and in violation of the FTC’s “unfair credit practices” regulation (16 C.F.R. § 444.2)—a regulation, the appellate court pointed out, that does not apply to “banks” by its own terms. The 8th Circuit also rejected defendant’s unconscionability claim under Iowa law, stating that the “doctrine of unconscionability does not exist to rescue parties from bad bargains.” The appellate court further rejected the defendant’s other “equitable arguments” as “untenable” primarily because the mortgage is a “credit agreement” regulated under Iowa Code § 535.17(5)(c), and that statute expressly displaces equitable remedies.
HUD announces Nebraska and Iowa disaster relief
On February 24, HUD announced disaster assistance for certain areas in Nebraska and Iowa impacted by severe storms, straight-line winds, and tornadoes on December 15, 2021. This follows President Biden’s major disaster declaration for certain counties on February 23. The disaster relief includes providing an automatic 90-day moratorium on foreclosures of FHA-insured home mortgages for covered properties and making FHA insurance available to victims whose homes were destroyed or severely damaged, such that “reconstruction or replacement is necessary.” Additionally, HUD’s Section 203(k) loan program will allow individuals who have lost homes to finance the purchase of a house, or refinance an existing house and the costs of repair, through a single mortgage. The program will also allow homeowners with damaged property to finance the rehabilitation of existing single-family homes. Flexibility measures for state and local governments, public housing authorities, tribes, and tribally designated house entities are also addressed.
Iowa adopts rulemaking for remote notarial acts
On April 29, the Iowa secretary of state adopted rules governing remote notarizations. The rules, which take effect July 1, 2020, govern training, technology, standards for communication, and proof of identity for remote notarial acts.
Iowa Division of Banking issues statement to bank presidents and CEOs
On April 22, the Iowa Division of Banking issued a statement to bank presidents and CEOs. The statement encourages banks to consider the Paycheck Protection Program Lending Facility created by the Federal Reserve as a liquidity option for Paycheck Protection Program loan activity. The announcement also addresses off-site examinations of financial institutions; the interagency statement on appraisals and evaluations for real estate affected by Covid-19; tracking payment extensions, deferrals, and modifications when working with customers; and loan loss reserve analysis, among other topics.