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Rent-to-own payment plan company settles deceptive representation allegations with FTC
On April 20, the FTC filed a complaint against a rent-to-own payment plan company for allegedly making false, misleading, and deceptive representations in violation of the FTC Act to consumers regarding the marketing, sale, and terms of their payment plans. In its complaint, the FTC alleged that while the company offered “same as cash” and “no interest” payment plans to consumers seeking to purchase items at retailers nationwide, it actually charged consumers substantially more than the item’s retail price. Accessing the actual terms of the payment plans was confusing for consumers, the FTC contended, and allegedly led to consumers frequently paying roughly twice the item’s sticker price if they made the initial and all scheduled recurring payments. According to the FTC, the company (i) received tens of thousands of consumer complaints; (ii) was aware consumers were confused by the terms of their payment plans; and (iii) had been presented with concerns from retailers regarding the company’s training materials, which, among other things, instructed sales associates to say “‘there actually isn’t an interest rate, because it’s not a loan.” Under the terms of the proposed settlement, the company is, among other things, (i) prohibited from misrepresenting the costs, nature, terms, and any other material facts related to its payment plans; (ii) required to clearly and conspicuously disclose the total cost to own a product when marketing its plans; (iii) ordered to monitor third parties, including retailers that offer the company’s payment plans to ensure compliance with the terms of the settlement; and (iv) required to receive express, informed consent from consumers prior to billing them for a plan. The company is also required to pay $175 million in equitable monetary relief.
Freddie Mac announces paperless billing for seller/servicers
On April 23, Freddie Mac announced that it will no longer produce paper bills for seller/servicers with respect to performing loans and non-performing loans, starting with May 2020 invoices. Beginning May 2020, customers can access Fannie Mae’s electronic billing platform (eBill) to view the information previously provided via paper bills.
Fannie Mae issues a multifamily investor update regarding Covid-19
On April 23, Fannie Mae announced that it has published a list on DUS Disclose (MBS Reports section) that identifies MBS for which an underlying loan is in a Covid-19-related forbearance period. Fannie Mae will update the Multifamily MBS Covid-19 Forbearance List, which includes the pool number, CUSIP, and loan number, on a weekly basis. Investors are advised that the list will not include loans in a forbearance period for reasons other than Covid-19.
SEC Division of Corporate Finance issues statement on submission of filings by email
On April 23, the SEC Division of Corporate Finance announced that it will permit certain documentation to be submitted via email from April 23 to June 30, 2020. The statement also provides that the division will not recommend enforcement action to the SEC if specific filings listed in the announcement are submitted via email in lieu of mailing or delivering the paper documents to the SEC if the filer attaches a complete document, including any required exhibits, as PDF attachments. The division also will not recommend enforcement if a filer is unable to provide a manual signature on a document submitted via email, provided certain steps set forth in the announcement are followed.
Lawmakers request SBA investigation of PPP lenders
On April 23, Senator Elizabeth Warren (D-MA) and Congresswoman Nydia Velazquez sent letters to the Inspectors General (IG) of the Department of Treasury and the Small Business Administration (SBA). On the same day, Senators Schumer (D-NY), Brown (D-OH), and Cardin (D-MD) also sent a letter to the SBA IG. The letters requested that the IGs investigate the administration of loan applications for the SBA Paycheck Protection Program (PPP) in order to detect any preferential treatment provided by lenders to certain applicants. The letter from Warren and Velazquez cited numbers released by the SBA, which they suggested indicated that smaller businesses have been receiving proportionally less of the PPP funds than much larger businesses. Schumer, Brown and Cardin requested that the SBA IG reply to the letter by May 8 with a recommendation on the SBA rules, regulations, and policies and procedures “to ensure small businesses get the money they need and are being treated fairly” by PPP lenders. Their letter expressed concerns that underserved, rural, minority-owned, and women-owned businesses need financial assistance immediately, and the lack of a previously-existing banking relationship should not place them lower in the lender’s queue preventing them from receiving PPP loans.
FHFA allows PPP loans as collateral for FHLB advances
On April 23, the Federal Housing Finance Agency (FHFA) announced that Federal Home Loan Banks (FHLB) will begin to accept Small Business Administration (SBA) Paycheck Protection Program (PPP) loans as collateral for advances to provide liquidity to community banks and other small lenders. FHFA issued a letter to FHLBs advising that banks may accept PPP loans from members subject to certain conditions including: (i) CAMELS rating must be at least a three, or credit rating in the top 60 percent; (ii) members downgraded after pledging PPP loans as collateral will have additional conditions placed on the collateral; and (iii) if the member does not replace PPP loans after downgrade with alternate eligible collateral, the FHLB will take possession of the collateral and impose haircuts based on member rating. The letter also sets out additional conditions regarding discounts, caps and limits. Among these conditions: (i) FHLBs must have at least a 10 percent collateral discount on 100 percent or less of unpaid principal balance (UPB); (ii) PPP collateral is capped at 20 percent of a member’s “lendable pledged collateral”; and (iii) a member may not pledge PPP loans for more than $5 billion of lendable collateral.
Fed IFR allows unlimited monthly convenient transfers and withdrawals
On April 23, the Fed issued an interim final rule (IFR) which will remove the limit on monthly transfers from “savings deposits” in Regulation D. The IFR revises Regulation D’s definition of a savings deposit so that it no longer includes the monthly convenient transfer limit of six. The IFR permits, but does not require, institutions to suspend enforcement of the six transfer limit. The IFR contains frequently asked questions and answers on the impact it will have on accounts, reporting and funds access. The Federal Register announcement is linked here. Federal Financial Institutions Examination Council reports that may be affected by this IFR will be addressed later. The IFR took effect on April 23, and the Fed will accept comments until June 22.
Fed to issue monthly reports on CARES Act loan programs
On April 23, the Federal Reserve Board (Fed) announced that in an effort to maintain transparency, it will disclose information to the public regarding recent actions it has taken to “foster economic recovery.” Among the information it will make public, the Fed plans to issue a monthly report on CARES Act liquidity and lending facilities which will contain the: (i) “[n]ames and details of participants in each facility”; (ii) “[a]mounts borrowed and interest rate charged”; and (iii) “[o]verall costs, revenues, and fees for each facility.” The Fed will provide this information on four CARES Act programs including the Main Street Lending Program (see Buckley Special Alert here).
Fed announces temporary increase of intraday credit by Federal Reserve Banks
On April 23, the Federal Reserve (Fed) announced that it temporarily increased the availability of intraday credit that can be provided by the Federal Reserve Banks. In its policy statement, the Fed stated that it will automatically suspend net debit caps and waive overdraft fees to assist primary credit institutions, which are “eligible to borrow under the Federal Reserve’s primary credit program for the discount window.” In addition, the Fed announced that its max cap procedure will be streamlined to enable secondary credit institutions—which are “eligible only for the Reserve Banks’ secondary credit discount window program”—to utilize the max cap program to “request collateralized capacity from their Reserve Banks,” and will waive the requirement to obtain a self-assessed net debit cap and board resolution before requesting a max cap. The Fed’s actions are effective as of April 24 and will terminate on September 30.
Class actions accuse banks of prioritizing existing customers and high-dollar loans
On April 23, a small business filed a class action lawsuit in the U.S. District Court for the Central District of California against a large bank for allegedly ignoring the CARES Act’s Paycheck Protection Program (PPP) “regulations for administering, processing, and handling” loan applications. The complaint claims that the bank disregarded a requirement to process loans in the order that they were submitted, and also contends that the bank made false and misleading statements to conceal the fact that high dollar loans were moved to the front of the processing queue in order for the bank to obtain higher fees. The class action seeks certification of the class, injunctive relief, disgorgement, and punitive and statutory damages, among other things.
On April 22 in a separate class action based on similar facts and allegations, a small business owner filed a motion for a temporary restraining order and preliminary injunction against a different large bank. The business owner filed the motion in the U.S. District Court for the Southern District of Texas, Houston Division to prevent the bank from applying “illegal eligibility requirement[s]” to the Small Business Administration-guaranteed PPP loans. The motion claims that the bank was only processing loan applications from the bank’s existing business customers in disregard for the CARES Act and Interim Final Rule instruction to administer the PPP loans to all customers, existing and new. In addition to the temporary restraining order and a preliminary injunction, the motion requests that the bank issue a public statement that their existing business customer eligibility requirement is no longer in effect. In an order issued on April 29, the court denied the business owner’s motion for a temporary restraining order and deferred ruling on the preliminary injunction until after a hearing.