Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Texas adopts home equity lending amendments

    State Issues

    On December 31, the Texas Department of Banking, Department of Savings and Mortgage Lending, Office of Consumer Credit Commissioner, and Credit Union Department issued amendments related to home equity lending to specify requirements for electronic disclosures. With respect to oral and electronic loan applications, one of the provisions “provides that a home equity loan closing must occur at least 12 days after the owner ‘submits a loan application to the lender,’” and “explains that a loan application may be submitted electronically in accordance with state and federal law governing electronic disclosures, with references to the UETA and the E-Sign Act.” Additionally, among other things, the provisions describe Texas Constitution, Article XVI, Section 50’s applicability to out-of-state financial institutions. The amendments are effective January 6.

    State Issues Texas State Regulators Home Equity Loans E-SIGN Act Mortgages

    Share page with AddThis
  • States reach $1.2 million settlement with MLOs over fraudulent SAFE Act education certifications

    State Issues

    On January 18, the Conference of State Bank Supervisors (CSBS) announced that 441 mortgage loan originators (MLOs) have agreed to pay approximately $1.2 million to settle allegations that they falsely claimed to have completed annual mortgage education programs required under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act). The enforcement action, which included the participation of 44 state agencies from 42 states, targeted a mortgage education scheme offered by a California-based company and its owner that provided false certificates claiming that MLOs took mandatory eight-hour continuing education courses as required for licensure under state and federal law. (See additional background information on the enforcement action here.) The states’ investigation—led by the California Department of Financial Protection and Innovation—revealed that the owner allegedly, in some instances, completed online education courses on behalf of the MLOs, and in other instances “granted course credit to [MLOs] who had enrolled in his approved course but who neither attended the course nor completed the required coursework necessary to receive course credit.” Administrative enforcement actions have been taken against the company, the owner, and members of the owner’s family. The settling MLOs have agreed to surrender their licenses for three months, pay a $1,000 fine to each state that is a signatory to the consent order in which the MLO holds a license, and take pre-licensing and continuing-education courses before petitioning or reapplying for an MLO endorsement or license. CSBS noted that MLOs implicated in the investigation that did not sign a consent order will face further enforcement actions with their appropriate state financial regulator for additional disciplinary action against their MLO licenses.

    State Issues Licensing State Regulators Enforcement Mortgages Mortgage Origination SAFE Act DFPI

    Share page with AddThis
  • CSBS drops suit against OCC fintech charter after revised application

    State Issues

    On January 13, the Conference of State Bank Supervisors (CSBS) announced that it has withdrawn its complaint challenging the OCC’s Special Purpose National Bank (SPNB) Charters and a financial services provider’s application for an OCC nonbank charter. CSBS filed a notice of voluntary dismissal without prejudice in the U.S. District Court for the District of Columbia asking the court to close the case. According to its press release, CSBS voluntarily took this action after the company, which had previously filed an application for an OCC SPNB charter, “amended its application to include seeking FDIC deposit insurance, thus complying with the legal requirement that national banks obtain federal deposit insurance before operating as a bank.”

    As previously covered by InfoBytes, CSBS filed a complaint in December 2020, to oppose the OCC’s potential approval of the company’s SPNB charter application. CSBS argued that the company was applying for the OCC’s nonbank charter, which was invalidated by the U.S. District Court for the Southern District of New York in October 2019 (the court concluded that the OCC’s SPNB charter should be “set aside with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” covered by InfoBytes here). At the time, CSBS argued that “by accepting and imminently approving” the company’s application, the “OCC has gone far beyond the limited chartering authority granted to it by Congress under the National Bank Act (NBA) and other federal banking laws,” as the company is not engaged in the “business of banking.” CSBS sought to, among other things, have the court declare the agency’s nonbank charter program unlawful and prohibit the approval of the company’s charter under the NBA without obtaining FDIC insurance.

    OCC acting Comptroller of the Currency Michael J. Hsu issued a statement following the withdrawal of the legal challenge. “We must modernize the regulatory perimeter as a prerequisite to conducting business as usual with firms interested in novel activities. Modernizing the bank regulatory perimeter cannot be accomplished by simply defining the activities that constitute ‘doing banking,’ but will also require determining what is acceptable activity to be conducted in a bank. Consolidated supervision will help ensure risks do not build outside of the sight and reach of federal regulators.”

    State Issues Courts CSBS OCC Fintech Bank Regulatory Bank Charter National Bank Act Nonbank FDIC

    Share page with AddThis
  • States reach $1.85 billion settlement with student loan servicer

    State Issues

    On January 13, a coalition of attorneys general from 38 states and the District of Columbia reached a $1.85 billion settlement with one of the nation’s largest student loan servicers, resolving allegations that it engaged in misconduct when servicing student loans. The settlement, subject to court approval, brings to an end multistate litigation and investigations into the allegations that the servicer steered borrowers into costly forbearances and expensive repayment plans rather than helping borrowers find affordable income-driven repayment (IDR) plans. The servicer denies violating any consumer financial laws or causing borrower harm, as stated in a separate press release, but has agreed to maintain servicing practices to support borrower success.

    Under the terms of the settlement, the servicer has agreed to cancel more than $1.7 billion in private student loan balances owed by roughly 66,000 borrowers. An additional $95 million in restitution payments of about $260 each will also be sent to approximately 357,000 federal student loan borrowers, and the servicer will also pay approximately $142.5 million to the signatory AGs. The settlement also requires the servicer to make several reforms, including explaining the benefits of IDR plans and offering estimated income-driven payment options to borrowers prior to placing them into deferment or discretionary forbearance. The servicer is also required to notify borrowers about the Department of Education’s Public Service Loan Forgiveness limited waiver opportunity (covered by InfoBytes here), implement changes to its payment-processing procedures to limit certain fees for late payments or entering forbearance status, and improve communications informing borrowers of their rights and obligations.

    State Issues State Attorney General Enforcement Settlement Student Lending Student Loan Servicer

    Share page with AddThis
  • DFPI enters into a settlement with a rent-to-own furniture provider

    State Issues

    On January 10, the California Department of Financial Protection and Innovation (DFPI) announced a settlement with a Los Angeles-based rent-to-own furniture provider for allegedly failing to comply with the Karnette Rental-Purchase Act (Karnette Act) in connection with its subscription agreements. This settlement constitutes the first action against a rent-to-own firm for violating the California Consumer Financial Protection Law (CCFPL). According to the settlement, in addition to charging excessive late fees, the company failed to: (i) disclose whether the property subject to the rental-purchase agreement is new or used; (ii) clearly and conspicuously provide the Karnette Act’s mandated contractual disclosures; and (iii) adhere to the Karnette Act’s prescribed formula for calculating the maximum cash price, among other things. As part of the settlement, the company must desist and refrain from violating the CCFPL, refund customers late fee overcharges, offer its rent-to-own products and services in compliance with the Karnette Act and applicable consumer laws, and report on its activities semi-annually to the DFPI. According to DFPI Commissioner Clothilde V. Hewlett, the consent order “reminds California businesses and consumers that the DFPI will be exercising its expanded authority under the new law.”

    State Issues DFPI State Regulators California Settlement CCFPL Rent-to-Own Enforcement

    Share page with AddThis
  • NYDFS puts CFDL compliance obligations on hold

    State Issues

    On December 31, NYDFS announced that providers’ compliance obligations under the state’s Commercial Finance Disclosure Law (CFDL) will not take effect until the necessary implementing regulations are issued and effective. The CFDL was enacted at the end of December 2020, and amended in February 2021, to expand coverage and delay the effective date to January 1, 2022. (See S5470-B, as amended by S898.) Under the CFDL, providers of commercial financing, which include persons and entities who solicit and present specific offers of commercial financing on behalf of a third party, are required to give consumer-style loan disclosures to potential recipients when a specific offering of finance is extended for certain commercial transactions of $2.5 million or less. In October 2021, NYDFS published a notice announcing a proposed regulation (23 NYCRR 600) to implement the CFDL, which provided that the compliance date for the final regulation will be six months after the final adoption and publication of the regulation in the State Register (covered by InfoBytes here). Comments on the proposed regulation were due December 19. NYDFS noted in its announcement that “[i]n light of the significant feedback received, the Department is carefully considering the comments received and intends to publish a revised proposed regulation for notice-and-comment early in the new year.”

    State Issues Bank Regulatory NYDFS Commercial Finance CFDL Compliance New York Agency Rule-Making & Guidance

    Share page with AddThis
  • New York AG alerts companies on “credential stuffing” cyberattacks

    State Issues

    On January 5, the New York attorney general issued a report, which highlights the results of an investigation into “credential stuffing.” The investigation discovered over 1.1 million online accounts compromised in cyberattacks at 17 well-known companies. The report, Business Guide for Credential Stuffing Attacks, details attacks, which involve repeated, automated attempts to access online accounts using usernames and passwords stolen from other online services, and provides recommendations on how business can protect themselves. Through credential stuffing, which is one of the most common forms of cyberattacks, offenders utilize automated software to reuse stolen usernames and passwords, relying on the human tendency to reuse the same credentials to access various online accounts and platforms. The AG’s office launched the investigation “in light of the growing threat of credential stuffing,” and monitored several online communities dedicated to credential stuffing. According to the report, the office discovered thousands of posts that had customer login credentials that were tested by hackers in a credential stuffing attack and found that the information could be used to access other accounts. From these posts, the office compiled credentials to compromised accounts at seventeen companies, which consisted of online retailers, restaurant chains, and food delivery services, and collected credentials for over 1.1 million customer accounts, all of which seemed to have been compromised. After alerting the companies regarding the compromised accounts and urging them to investigate and take protective action, every company did so. The report recommended that businesses maintaining online accounts have a data security program, including effective safeguards for protecting customers from credential stuffing attacks in four areas: (i) defending against credential stuffing attacks; (ii) detecting a credential stuffing breach; (iii) preventing fraud and misuse of customer information; and (iv) responding to a credential stuffing incident. Specifically, three safeguards considered to be “highly effective” at defending against credential stuffing attacks were bot detection services, multi-factor authentication, and password-less authentication. The report also recommended that companies require reauthentication at the time of a purchase. Additionally, “[b]usinesses should have a written incident response plan that includes processes for responding to credential stuffing attacks” and notification to affected parties.

    State Issues New York Investigations State Attorney General Privacy/Cyber Risk & Data Security

    Share page with AddThis
  • New York reduces judgment interest on debts

    State Issues

    On December 31, the New York governor signed S5724A, which amends the civil practice law and rules relating to the rate of interest applicable to money judgments arising out of consumer debt. Specifically, the bill provides that the interest rate that can be charged on unpaid money judgments is 2 percent and applies to judgments involving consumer debt, which is defined as “any obligation or alleged obligation of any natural person to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family or household purposes […], including, but not limited to, a consumer credit transaction, as defined in [section 105(f) of the civil practice law and rules].” The bill is effective April 30.

    State Issues New York State Legislation Consumer Finance Debt Collection Interest

    Share page with AddThis
  • New York AG settlement cancels debt

    State Issues

    On December 29, the New York attorney general announced a settlement with a New York-based off-campus private student housing provider (respondent) for allegedly deceiving hundreds of students, primarily at a New York state college, since 2019. According to the assurance of discontinuance, the respondent, among other things: (i) routinely collected interested students’ information; (ii) persuaded students to sign leases without first determining certain qualifications; (iii) denied students access to housing; (vi) alleged students owed thousands in rent; and (v) referred students to debt collectors. The respondent also allegedly charged students excess rent and fees and disclosed to some students that they could get out of their lease if they found another student to take it over, but then unlawfully charged a $300 “delegation” fee. The respondent allegedly at times permitted some students to prepay rent if it believed they did not meet certain qualification criteria, in violation of state rent laws, and charged certain students excessive late fees for each month of rent that was not timely paid. The terms of the settlement cancels more than $200,000 in improper debts, recovers $65,958 in restitution, and imposes a $50,000 civil penalty on the respondent. The settlement also prohibits the respondent from committing fraudulent and predatory practices in the future.

    State Issues Debt Collection State Attorney General New York Consumer Finance

    Share page with AddThis
  • New York establishes task force for private student loan refinance

    State Issues

    On December 22, the New York governor signed SB 2767, which established a private student loan refinance task force. Among other things, the bill created the task force to study and report on ways lending institutions offering private student loans to graduates of institutions of higher education can be encouraged to create student loan refinancing programs. According to the bill, the private student loan refinance task force is instructed to issue a report of its findings and recommendations to the New York governor, the temporary president of the senate, and the speaker of the assembly. The bill is effective immediately and will expire on January 1, 2023.

    State Issues State Legislation Student Lending New York

    Share page with AddThis

Pages