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NYDFS names first Student Advocate and Director of Consumer Advocacy
On September 17, NYDFS announced that Winston Berkman-Breen has been appointed as the agency’s first-ever Student Advocate and Director of Consumer Advocacy. Prior to joining NYDFS, Berkman-Breen was a Justice Catalyst Fellow and Staff Attorney with the Consumer Protection Unit at the New York Legal Assistance Group, where he represented low-income New York consumer borrowers in state and federal court against lenders and debt collectors. In his new role with NYDFS, Berkman-Breen “will advocate on behalf of students and serve as a liaison between DFS and New York consumers with concerns,” including reviewing and analyzing complaint data from student borrowers to recommend appropriate action by the regulator.
Washington DFI proposes MLO and student loan servicer amendments
On September 24, the Washington State Department of Financial Institutions (DFI) will hold a rulemaking hearing to discuss amendments concerning mortgage loan originators (MLOs) as well as provisions related to student loan servicers. The proposed amendments will amend rules impacting Washington’s Consumer Loan Act and the Mortgage Broker Practices Act, including those related to the regulation of student loan servicers under a final rule that went into effect January 1. (See previous InfoBytes coverage on DFI’s adoption of amendments concerning student loan servicers here.) According to DFI, the proposed amendments are currently scheduled to take effect November 24.
Among other proposed changes impacting MLOs are additional disclosure requirements concerning interest rate locks. Under the proposed amendments, MLOs will be required to provide a new interest rate lock agreement to a borrower within three business days of a locked interest rate change. Valid reasons for a change in a locked interest rate include changes in loan value, credit score, or other factors that may directly affect pricing. The amendments will also permit MLOs to include a prepayment penalty or fee on an adjustable rate residential mortgage loan provided “the penalty or fee expires at least sixty days prior to the initial reset period.” Among other provisions, the amendments also stipulate that a loan processor may work on files from an unlicensed location provided the processor accesses the files directly from the licensed mortgage broker’s main computer system, does not conduct any of the activities of a licensed MLO, and the licensed MLO has in place safeguards to protect borrower information.
The proposed amendments also contain several changes applicable to student loan servicers regulated under the Consumer Loan Act, including that: (i) licensees servicing student loans for borrowers in the state “may apply to the director to waive or adjust the annual assessment amount”; (ii) licensees are required to disclose to all service members their rights under state and federal service member laws and regulations connected to their student loans; and (iii) student loan servicers must review all student loan borrowers against the Department of Defense’s database to ensure borrower entitlements are applied appropriately, and maintain written policies and procedures for this practice. The proposed amendments also state that compliance with federal law is sufficient for complying with several Washington requirements applicable to student loan servicers, including borrower payment provisions.
NYDFS investigating student debt relief industry
On September 5, NYDFS announced a new investigation into the student debt relief industry. NYDFS is issuing subpoenas to eight student debt relief companies to investigate deceptive practices in the industry, including misrepresenting the ability to achieve debt relief and charging improper fees. According to NYDFS, “deceptive” student debt relief companies charge borrowers high fees to consolidate their multiple student loans, while the U.S. Department of Education will offer the same programs free of charge. NYDFS estimates that New York residents collectively owe over $86 billion in student loans.
New York says creditors prohibited from obtaining confessions of judgments against out-of-state borrowers
On August 30, the New York governor signed S 6395, which prohibits creditors from obtaining confessions of judgments through the New York court system against individuals and businesses located outside of the state in order to seize borrower assets. According to a press release issued by Governor Cuomo, prior to the enactment of S 6395, creditors were able to “freeze and seize a borrower’s assets by obtaining a judgment entered in a court far from where the contested agreement was executed, making it difficult for a borrower to legally contest the unfair penalty.” Under S 6395, an entry of judgment may only be filed in “the county where the defendant’s affidavit stated that the defendant resided when it was executed or where the defendant resided at the time of filing.” For non-natural persons, the county of residence is where it has a place of business. Notably, government agencies engaged in enforcing civil or criminal law against a person or a non-natural person, are exempt from the bill’s measures and may file an affidavit in any county within the state. S 6395 is effective immediately.
Illinois creates Blockchain Technology Act
On August 23, the Illinois governor signed HB 3575 to create the Blockchain Technology Act. Under the Act, “blockchain” is defined as “an electronic record created by the use of a decentralized method by multiple parties to verify and store a digital record of transactions which is secured by the use of a cryptographic hash of previous transaction information.” Among other things, the Act specifies permitted uses of blockchain technology in transactions and proceedings, such as in smart contracts, electronic records and signatures, and provides several limitations, including a provision stipulating that if a law requires a contract or record to be in writing, the legal enforceability may be denied if the blockchain transaction cannot later be accurately reproduced for all parties. Moreover, local government units are prohibited from imposing taxes or fees for the use of blockchain technology, and cannot require a person or entity to obtain a certificate, license, or permit in order to use a blockchain or smart contract. HB 3575 takes effect January 1, 2020.
Illinois updates Consumer Installment Loan Act and Payday Loan Reform Act
On August 23, the Illinois governor signed SB 1758, which amends the state’s Consumer Installment Loan Act and the Payday Loan Reform Act. Generally, payday loans must be repayable in substantially equal and consecutive installments. The amendment clarifies that a “‘substantially equal installment’ includes a last regularly scheduled payment that may be less than, but not more than 5% larger than, the previous scheduled payment according to a disclosed payment schedule agreed to by the parties.” The amendments take effect immediately.
New York restores Martin Act’s six-year statute of limitations
On August 26, the New York governor signed S 6536, which returns the statute of limitations within which the state’s attorney general must bring financial fraud claims under the Martin Act to six years. As previously covered by InfoBytes, in 2018 the New York Court of Appeals issued a ruling that claims brought under the Martin Act are governed by a statute of limitations of three years, not six. According to the majority in that court decision, the three-year period applied because the Martin Act “expands upon, rather than codifies, the common law of fraud” and “imposes numerous obligations—or ‘liabilities’—that did not exist at common law,” which justified the imposition of a three-year statute of limitations. However, Governor Andrew Cuomo noted that “[b]y restoring the six-year statute of limitations under the Martin Act, we are enhancing one of the state’s most powerful tools to prosecute financial fraud so we can hold more bad actors accountable, protect investors and achieve a fairer New York for all.” Effective immediately, S 6536 will amend Section 213 of the state’s Civil Practice Law and Rules to include Martin Act cases among those that must be brought within six years.
CSBS launches online tools to navigate state rules
On August 21, the Conference of State Bank Supervisors (CSBS) launched three online tools designed to assist financial institutions navigate the state regulatory landscape and protect against cyber risks. The tools are: (i) a portal of state agency guidance for nonbank financial services companies; (ii) an interactive map of agent-of-the-payee exemptions, which identifies the states that do not require a money transmitter license for receiving a payment on behalf of a third party; and (iii) a cybersecurity 101 resource center for banks and nonbanks that features a guide to help financial institutions develop comprehensive cybersecurity programs. The tools were created as part of the CSBS Vision 2020, which is geared towards streamlining the state regulatory system to support business innovation and harmonize licensing and supervisory practices, while still protecting the rights of consumers.
Illinois pushing to increase accessibility to certified financial products
On August 19, the Illinois governor signed SB 1332, which is designed to decrease low-income consumers’ reliance on alternative financial products and increase the accessibility to certified financial products (defined as a “financial product offered by a financial institution that meets minimum requirements as established by the Comptroller”). SB 1332 creates the Illinois Bank On Initiative Commission, chaired by the state Comptroller, which will provide an annual, publicly available report (starting October 2020) that will list: (i) authorized certified financial products and minimum requirements for qualification; (ii) financial institutions providing certified financial products; and (iii) outreach strategies for facilitating access to certified financial products. SB 1332 is effective immediately.
Illinois requires companies to report data breaches to attorney general
On August 9, the Illinois governor signed SB 1624, which requires that a single data breach involving the personal information of more than 500 Illinois residents must be reported to the state attorney general. The notice must include: (i) a description of the nature of the breach of security or unauthorized acquisition or use; (ii) the number of Illinois residents affected by such incident at the time of notification; and (iii) any steps the data collector has taken or plans to take relating to the incident. Notification is required to be made “in the most expedient time possible and without unreasonable delay,” but no later than when the data collector informs consumers of the breach under current law. The bill is effective January 1, 2020.