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Rhode Island says service contracts are not insurance
On July 15, the Rhode Island governor signed H 5674, which clarifies that service contracts, vehicle theft protection product warranties, and vehicle maintenance agreements are not considered insurance and are therefore exempt from the state’s insurance code. The bill also amends definitions under the law’s chapter relating to service contracts. The amendments take effect January 1, 2020.
North Carolina AG sues unlicensed debt collector for multiple violations
On July 17, the North Carolina attorney general announced a lawsuit filed against multiple debt collection entities and their owner for allegedly collecting or attempting to collect on consumer debts in North Carolina without filing the appropriate registration or obtaining the necessary permits to operate as a debt collection agency in the state. According to the complaint, the entities, based and registered in Texas, purchased unpaid debts from a national rent-to-own consumer goods company. North Carolina customers allegedly received misleading collection notices from the entities simulating actual court notices and implying the customers had committed criminal offenses. Additionally, the complaint alleges that the entities filed criminal complaints against the customers, containing misleading information and resulting in actual summonses being issued. The complaint alleges violations of North Carolina’s Unfair and Deceptive Trade Practices Act, Business Corporation Act, Professional Corporation Act, Uniform Partnership Act, and North Carolina’s Prohibited Practices by Collection Agencies Engaged in Collection of Debts from Consumers and seeks among other things, civil penalties, restitution, and injunctive relief.
As a result of the complaint filing, the court approved a temporary restraining order prohibiting the entities from engaging in debt collection practices and scheduled a preliminary injunction hearing.
Rhode Island creates Student Loan Bill of Rights Act
On July 15, the Rhode Island governor signed HB 5936, which creates the “Student Loan Bill of Rights Act” to define responsibilities for student loan servicers and establish guidelines related to the issuance of postsecondary loans. Notably, federal or state chartered banks or credit unions, as well as their wholly owned subsidiaries, that originate student loans or act as servicers are exempt from the majority of the act’s requirements, including sections 19-33-4, 19-33-6 through 19-33-11, 19-33-12(9), and 19-33-14.
The act requires non-exempt student loan servicers that service at least six or more postsecondary student loans within a consecutive 12 month period to comply with certain requirements, including (i) registering with the Department of Business Regulation (Department) no later than September 30 “or within 30 days of conducting student loan servicing, whichever is earlier”; (ii) maintaining loan transaction records; (iii) filing annual reports with the Department; (iv) disclosing repayment program terms and refinance options to borrowers; and (v) responding to borrower inquiries within specified time frames concerning, among other things, credit reporting disputes, application of payments, and record transfers.
Additionally, the act prohibits student loan servicers from, among other things, (i) employing any scheme designed to defraud or mislead borrowers; (ii) engaging in unfair or deceptive practices; (iii) misapplying payments; (iv) failing to report payment histories to credit bureaus; (iv) failing to communicate with a borrower’s authorized representative; (v) making false statements or omitting material facts in connection with information filed with a government agency or provided in the course of an investigation; and (vi) failing to properly evaluate a borrower’s eligibility for public service loan forgiveness programs or income-driven repayment programs.
The act gives the Department authority to conduct investigations and examinations of registered servicers, as well as impose fines of not more than $2,000 per violation. Furthermore, the Rhode Island attorney general may enforce violations of prohibited conduct as unlawful acts or practices. The act is effective immediately.
The Department of Education has issued an interpretation that servicers that are servicing Direct Loans for the Department of Education would be exempt from state licensing and substantive requirements, but the act does not accommodate that interpretation.
NY extends law allowing licensed lenders to charge annual fees
On July 3, the New York governor signed SB 6100, which extends for an additional two years the existing provision of the banking law allowing licensed lenders to charge annual fees on open-end personal loans. Effective immediately, the law will now remain in full force and effect until June 30, 2021.
NY AG settlement resolves deceptive practices action with ticket resale companies
On July 10, the New York attorney general announced a settlement with two ticket resale companies that allegedly deceived thousands of consumers by selling event tickets that the companies did not actually own. According to the announcement, the defendants’ practice of selling “speculative tickets” to consumers involved listing and selling tickets the companies did not possess and attempting to purchase such tickets only after a consumer had already placed an order. The attorney general claimed the defendants often charged premiums or inflated prices for tickets then “kept the difference between the price they actually paid and the price at which the speculative ticket was sold to a consumer.” Additionally, one of the defendants also allegedly misled consumers in instances when tickets could not be provided by blaming technical errors or vague supplier issues. While the defendants have not admitted any liability, under the terms of the settlement—subject to court approval—they have agreed to pay $1.55 million and adopt reforms designed to protect ticket purchasers in the future, including, where appropriate, providing clear and conspicuous disclosures stipulating that the ticket seller does not possess the listed tickets and is merely offering to obtain such tickets on a consumer’s behalf.
Hawaii amends motor vehicle service contract definition
On July 2, the Hawaii governor signed HB 154, which clarifies that motor vehicle service contracts regulated by the Insurance Commissioner include contracts for certain motor vehicle repair and replacement services. The bill amends the law’s definition of “service contract” to include a specified list of repair or placement activities related to motor vehicles. The amendments are effective on July 1, 2020.
Japanese bank pays $33 million to settle NYDFS claims of weak BSA/AML controls
On June 24, the New York Department of Financial Services (NYDFS), together with the New York Attorney General, announced a $33 million settlement with a Japanese bank resolving allegations the bank’s internal controls—specifically, its anti-money laundering (AML), Bank Secrecy Act (BSA), and Office of Foreign Assets Control (OFAC) sanctions compliance programs—at its New York Branch were “systematically deficient” between November 2014 and November 2018. This allegedly resulted in violations of state and federal laws and regulations, as well as two previous NYDFS consent orders from 2013 and 2014. The settlement resolves an action that was commenced by the bank against NYDFS in connection with a 2017 application with the OCC to convert its state-licensed branches in New York, Illinois, and California and its state-licensed agency offices in Texas to federally licensed branches and agency offices. The action sought to block a NYDFS order that would keep the bank under its supervisory purview notwithstanding the OCC’s granting of the federal charter. The settlement indicates that neither NYDFS, NYAG, or the bank admit any wrongdoing, but have agreed to dismiss all outstanding claims, upon the bank’s monetary payment. The settlement states that NYDFS releases the bank of any further obligations related to the previous consent orders and notes that it “will not attempt to exercise any visitorial power or other supervisory, regulatory, or enforcement authority over [the bank] or its branches or agencies.”
Mortgage servicer agrees to pay $7.8 million in escrow interest in CDBO action
On June 18, the California Department of Business Oversight (CDBO) announced a $7.8 million settlement with a mortgage servicer to pay allegedly overdue escrow interest to more than 94,000 California homeowners. According to the stipulation reflecting the settlement, the allegations result from a 2017 CDBO mortgage servicing examination, which found that the servicer “had failed to pay [two percent] interest on escrow impounds in violation of” California Fin. Code § 50202(d) and California Civ. Code § 2954.8. The settlement requires the servicer to pay the two percent interest for the period of July 1, 2014, through December 31, 2018, to 94,483 borrowers with escrow impound accounts. The servicer also agreed to pay two percent interest on escrow impound accounts for California residential mortgages going forward, although it reserved the right to stop paying interest in certain circumstances, including a final civil order or decision from the California Supreme Court or U.S. Court of Appeals for the 9th Circuit finding that Financial Code Section 2954.8 is not applicable to national banks or their subsidiaries.
Nevada authorizes a regulatory sandbox program
On June 13, the Nevada governor approved SB 161, which requires the Director of the Department of Business and Industry to establish and administer the “Regulatory Experimentation Program for Product Innovation.” If the Director approves an applicant to participate in the Program, the participant’s product or service will be generally exempt from certain statutory and regulatory requirements related to financial products or services. Under the legislation, any consumer of the product or service must be a resident of Nevada and not more than 5,000 consumers may be provided the product or service during the period of testing, unless the Director approves up to 7,500 consumers. Participants must make certain disclosures to consumers, including, if applicable, that the participant does not hold a license to provide a product or service outside of the program and method of submitting a complaint to the Director. The Director may also require additional disclosures. The legislation also authorizes the Director to establish participant-reporting requirements by regulation and generally limits participation in the program to 2 years, although a participant may seek an extension of this period to apply for any license or other authorization otherwise required for the product or service. The legislation is effective on June 13 for the purpose of adopting any regulations and performing any other preparatory administrative tasks that are necessary to carry out the provisions of the bill, and on January 1, 2020, for all other purposes.
Hawaii extends relief to full-time National Guard; adds vehicle lease terminations
On June 7, the Hawaii governor signed HB 991, which extends the state’s military civil relief protections to persons serving on full time National Guard duty under Section 101(19) of Title 32 of the U.S. Code. Additionally, the bill amends other provisions of the state’s military civil relief law to align with the federal Servicemembers Civil Relief Act, including (i) extending the duration of a stay of any action from 60 days to 90 days after a period of military service ends, and (ii) extending the termination of lease provisions to cover motor vehicle leases, in addition to residential leases. The bill became effective on June 7.