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California Bill Proposes Prohibition of Advance Fees for Loan Modification Consultant
On September 9, A.B. 764, a bill to prohibit certain loan modification consultants from receiving fees in advance of modifying a loan, was enacted by the California legislature and is currently pending approval by Governor Arnold Schwarzenegger. The proposed bill would prohibit any person performing loan modification services from claiming, demanding, charging, receiving, collecting or contracting for a fee from a borrower under a loan modification agreement until the terms of the loan have been modified. However, real estate brokers would be exempt from the fee prohibition to the extent that they comply with the provisions of the law. In addition, the bill would further exempt licensed residential mortgage lenders and servicers from the fee prohibition. Among other things, the bill would also prohibit certain advertisements that may be deemed misleading to prospective borrowers. Under the bill, violations of the statute would carry the following penalties: (i) for individuals, a maximum fine of $20,000 and/or imprisonment for up to 12 months; and (ii) for corporations, a maximum fine of $60,000. The bill includes a sunset provision of January 1, 2013.
North Carolina Law to Increase Requirements for Collection Agencies, Debt Buyers in Foreclosure Actions
On September 9, North Carolina Governor Bev Perdue signed SB 974, the “North Carolina Consumer Economic Protection Act,” (the Act) which pertains to debt collection and mortgage foreclosure practices. Under the Act, the Clerk of Court who presides over foreclosure hearings has the authority to continue hearings regarding a foreclosure for up to 60 days. In making this determination, the Clerk of Court may consider (i) whether the debtor was offered an opportunity to resolve the foreclosure through forbearance, loan modification, or other commonly accepted resolution plan, (ii) whether there was actual responsive communication with the debtor (e.g., telephone conferences or in-person meetings), (iii) whether the debtor has indicated that he or she has the intent and ability to make payments under a foreclosure resolution plan, and (iv) whether there were “good faith voluntary resolution efforts” to avoid a foreclosure. Further, under the Act, a collection agency that is or is acting on behalf of a “debt buyer,” as defined by the Act, cannot attempt to collect on a debt (e.g., bring suit or initiate an arbitration proceedings) (i) if such actions would be barred by the statute of limitations, (ii) without first giving the debtor written notice of the intent to file a legal action at least 30 days in advance of filing, and (iii) without valid documentation that the debt buyer is the owner of debt and that there has been “reasonable verification” of the amount of the debt. The Act also amends requirements for (i) materials that must be part of and attached to complaints against certain debt collection entities, (ii) prerequisites to entering a default or summary judgment against a debtor, (iii) materials required for setting forth a party’s obligation to pay attorneys’ fees for services rendered to an assignee or a debt buyer, and (iv) the percentage of the principal balance of the loan which must be posted by an appealing party opposing a foreclosure. Finally, the Act increases certain civil penalty amounts that may be imposed against debt collection agencies from $100-$2,000 to $500-$4,000 per incident. The Act becomes effective October 1, 2009 and applies to foreclosures initiated, debt collection activities undertaken, and actions filed on or after October 1, 2009.
California Court Enjoins Lender From Continuing Allegedly Predatory Lending Practices
On August 24, CashCall, Inc. - an Anaheim, California based lender that makes small, unsecured cash loans to consumers at high interest rates - consented to the entry of a final judgment and permanent injunction in connection with allegations by the California Attorney General regarding its lending and collection activities. According to the complaint, CashCall allegedly misled customers with deceptive television, radio and online advertising, in violation of California Business and Professions Code Section 17500. For example, while CashCall’s advertisements suggested that low interest rate loans were available to all borrowers, the advertised rates were only offered to some borrowers. The complaint further alleged that CashCall used illegal and abusive debt collection practices (e.g., making excessive and verbally abusive telephone calls at all hours of the day and night and/or threatening to initiate law enforcement and wage garnishment proceedings against borrowers without any basis for doing so) in violation of California Business and Professions Code Section 17200. The court order requires CashCall to (i) cease making excessive and verbally abusive telephone calls, (ii) pay $1 million in civil penalties and expenses related to the investigation and resolution of the case, (iii) train its employees within 30 days, and not fewer than four times per year thereafter, to ensure compliance with the judgment, (iv) terminate any officer, director or employee who violates the terms of the judgment, (v) record all telephone calls made to, or received from, prospective and current borrowers, and (vi) maintain a detailed log of all consumer complaints.
Florida Attorney General Sues Mortgage Foreclosure Rescue Services Company
On August 21, Florida Attorney General Bill McCollum sued a mortgage foreclosure rescue services company, JPB Consulting, Inc. (of Kissimmee, FL), and its president for allegedly charging illegal up-front fees for foreclosure relief services that the company allegedly did not actually provide. The lawsuit seeks (i) the dissolution of the company, (ii) a permanent injunction against the defendants from charging illegal up-front fees and failing to provide advertised services, and (iii) civil penalties of $15,000 per violation, full victim restitution, and reimbursement for the cost of the investigation and litigation.
Massachusetts Regulator Issues Cease-Activity Directives to Payday Lenders
On August 18, the Massachusetts Division of Banks (the Division) announced that it has issued cease-activity directives to 95 companies allegedly making illegal payday loans to Massachusetts consumers. According to the Division, many of the companies it identified were charging annual percentage rates averaging over 500% and fees averaging $40-60, in violation of the Massachusetts small-loan licensing law.
New Hampshire Enacts Bills Relating to Health Data Privacy
On August 7, New Hampshire Governor John Lynch signed into law H.B. 542, which primarily addresses health privacy issues. The new law (i) authorizes health care providers to disclose an individual’s protected health information to health information exchanges, and (ii) allows individuals to opt out of sharing their protected health care information through health information exchanges. The operative provisions of the new law become effective January 1, 2010.
Eighth Circuit Holds DIDMCA Does Not Preempt State Law Limits on Closing Costs and Fees
On August 7, the U.S. Court of Appeals for the Eighth Circuit held that the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) does not preempt a Missouri state law governing the types and amounts of closing costs and fees a lender may charge on second-lien residential mortgage loans. Thomas v. US Bank National Ass’n, No. 08-3302, 2009 WL 2410577 (8th Cir. Aug. 7, 2009). This case involved allegations that certain fees and costs paid in connection with mortgage loans—but not the interest rate of the loans—violated Missouri law. The 33 defendant banks—purchasers of the subject loans from federally-insured, state-chartered (and now-defunct) FirstPlus Bank – argued that DIDMCA, similar to the National Bank Act (NBA), completely preempted any state law usury claim against a national bank. The Eighth Circuit rejected the defendants’ argument. The court found that a qualifying phrase in the relevant section of DIDMCA was intended to limit its preemptive effect to conflicting state laws capping interest rates. Specifically, the court reasoned that because the interest rate allowed by Missouri law for second mortgages was higher than the interest rate set forth in DIDMCA, the federal statute did not apply. The court noted that its decision conflicts with the Fourth Circuit’s decision in Discover Bank v. Vaden, 489 F.3d 594 (4th Cir. 2007), which held that DIDMCA completely preempts state usury claims against federally-insured, state-chartered banks. The defendant national banks argued in the alternative that the NBA itself applied (and preempted state law), but the court also rejected this argument, holding that, as assignees, the defendant banks were subject to all claims that could have been brought against the originating institution.
Additional States Pass SAFE Act Legislation
Recently, Illinois, Massachusetts, Michigan, New Hampshire, Ohio, Oregon, and Rhode Island joined the list of states that have enacted legislation to effect the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008. Illinois HB 4011, Massachusetts SB 452, Michigan SB 462, New Hampshire HB 610, Ohio HB 1, Oregon HB 2189, and Rhode Island SB 461 all require mortgage loan originators to, among other things, register with the Nationwide Mortgage Licensing System (NMLS), complete pre-license testing and education, submit to fingerprinting for the purpose of a criminal history background check, and pass a qualified written exam developed by the NMLS. The Ohio, Oregon, and New Hampshire bills also amend certain statutory definitions and requirements applicable to mortgage lenders and mortgage brokers. Illinois HB 4011, Massachusetts SB 452 and Michigan SB 462 both became effective July 31, 2009, with the mortgage loan originator licensing provisions of each taking effect on July 31, 2010, or July 31, 2011, depending on certain factors. New Hampshire SB 610 and Oregon HB 2189, including the mortgage loan originator licensing provisions of each bill, became effective July 31, 2009. Rhode Island SB 461 became effective July 16, 2009, with the mortgage loan originator licensing provisions of the bill taking effect on July 31, 2009, or July 31, 2010, depending on whether the mortgage loan originator was actively licensed prior to the bill’s effective date. The relevant portion of Ohio HB 1 is effective January 1, 2010.
Additional States Pass SAFE Act Legislation
North Carolina and Pennsylvania recently joined the list of states that have enacted legislation to effect the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). North Carolina HB 1523 and Pennsylvania HB 1654 require mortgage loan originators to, among other things, register with the Nationwide Mortgage Licensing System (NMLS), complete pre-license testing and education, submit to fingerprinting for the purpose of a criminal history background check, and pass a qualified written exam developed by the NMLS. North Carolina HB 1523 became effective July 31, 2009, with mortgage loan originator licensure required by July 31, 2010 (for “exclusive mortgage brokers”) or by December 31, 2009 (for “limited loan officers”). Pennsylvania HB 1654 became effective immediately. Individuals not currently licensed as mortgage originators must file an application for a mortgage originator license by October 4, 2009 (60 days after the effective date). Mortgage originators previously licensed must complete the required education and testing requirements by December 31, 2009
Alabama Enacts Alabama Uniform Real Property Electronic Recording Act
Alabama Governor Robert Riley recently signed SB 90, a bill that enacts the “Alabama Uniform Real Property Electronic Recording Act.” SB 90 allows for (i) the electronic recording of documents that must otherwise, by law, be original, and (ii) the electronic signature of documents that must otherwise, by law, be signed, notarized, acknowledged, verified, witnessed, or made under oath. SB 90 also establishes the Alabama Electronic Recording Commission, which is authorized to adopt and enforce electronic recording and signature standards. The bill becomes effective January 1, 2010.