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Connecticut amends requirements for small lenders
On June 29, SB 1033 (the “Act) was enacted in Connecticut to amend the banking statutes. The Act, among other things, (i) redefines “small loan”; (ii) redefines “APR” to be calculated based on the Military Lending Act and include the cost of ancillary products among other fees as part of the “finance charge”; (iii) requires more people to obtain small loan licenses; (iv) requires that certain small loans are worth $5,000-$50,000, which is intended to capture larger loans particularly for student borrowers who may enter into income sharing agreements; (v) prohibits small loans from providing for an advance exceeding an unpaid principal of $50,000; and (vi) eliminates a requirement that certain people demonstrate an ability to supervise mortgage servicing offices in person. The Act also includes new licensing provisions, adding that any person who acts as an agent or service provider for a person who is exempt from licensure requires licensure if (i) they have a predominant economic interest in a small loan; (ii) they facilitate and hold the right to purchase the small loan, receivables or interest in the small loan; or (iii) the person is a lender who structured the loan to evade provisions in the Act. If the facts and circumstances deem the person a lender, they must be licensed under the Act.
New Hampshire amends rules for interest on escrow accounts
On June 20, New Hampshire enacted HB 520 (the “Act”) to amend provisions relating to escrow accounts maintained by licensed nondepository mortgage bankers, brokers, and servicers. The Act amends guidelines surrounding interest payments to escrow accounts maintained for the payment of taxes or insurance premiums related to loans on single family homes in New Hampshire and property secured by real estate mortgages. For both (single family homes and property) accounts, payments must be at a rate no less than the National Deposit Rate for Savings Accounts. Further, interest payments during the six-month period beginning on April 1 of each year, must be no less than the FDIC published rate in January of the same year, whereas interest payments during the six-month period beginning on October 1 of each year, must be no less than the FDIC published rate in July of the same year.
The Act was effective upon its passage.
Supreme Court blocks student debt relief program
On June 30, the U.S. Supreme Court issued a 6-3 decision in Biden v. Nebraska, striking down the Department of Education’s (DOE) student loan debt relief program (announced in August and covered by InfoBytes here) that would have provided between $10,000 and $20,000 in debt cancellation to certain qualifying federal student loan borrowers making under $125,000 a year.
The Biden administration appealed an injunction entered by the U.S. Court of Appeals for the Eighth Circuit that temporarily prohibited the Secretary of Education from discharging any federal loans under the agency’s program. (Covered by InfoBytes here.) Arguing that the universal injunction was overbroad, the administration contended that the six states lack standing because the debt relief plan “does not require respondents to do anything, forbid them from doing anything, or harm them in any other way.” Moreover, the secretary was acting within the bounds of the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act) when he put together the debt relief plan, the administration claimed.
In considering whether the secretary has authority under the HEROES Act “to depart from the existing provisions of the Education Act and establish a student loan forgiveness program that will cancel about $430 billion in debt principal and affect nearly all borrowers,” the Court majority (opinion delivered by Chief Justice Roberts, in which Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett joined) held that at least one state, Missouri, had Article III standing to challenge the program because it would cost the Missouri Higher Education Loan Authority (MOHELA), a nonprofit government corporation created by the state to participate in the student loan market, roughly $44 million a year in fees. “The harm to MOHELA in the performance of its public function is necessarily a direct injury to Missouri itself,” the Court wrote.
The Court also ruled in favor of the respondents on the merits, noting that the text of the HEROES Act does not authorize the secretary’s loan forgiveness plan. While the statute allows the Secretary to “waive or modify” existing statutory or regulatory provisions applicable to student financial assistance programs under the Education Act in connection with a war or other military operation or national emergency, it does not permit the Secretary to rewrite that statute, the Court explained, adding that the “modifications” challenged in this case create a “novel and fundamentally different loan forgiveness program.” As such, the Court concluded that “the HEROES Act provides no authorization for the [s]ecretary’s plan when examined using the ordinary tools of statutory interpretation—let alone ‘clear congressional authorization’ for such a program.”
In dissent, three of the justices argued that the majority’s overreach applies to standing as well as to the merits. The states have no personal stake in the loan forgiveness program, the justices argued, calling them “classic ideological plaintiffs.” While the HEROES Act bounds the secretary’s authority, “within that bounded area, Congress gave discretion to the [s]ecretary” by providing that he “could ‘waive or modify any statutory or regulatory provision’ applying to federal student-loan programs, including provisions relating to loan repayment and forgiveness. And in so doing, he could replace the old provisions with new ‘terms and conditions,”’ the justices wrote, adding that the secretary could provide whatever relief needed that he deemed most appropriate.
The Court also handed down a decision in Department of Education v. Brown, ruling that the Court lacks jurisdiction to address the merits of the case as the respondents lacked Article III standing because they failed to establish that any injury they may have suffered from not having their loans forgiven is fairly traceable to the program. Respondents in this case are individuals whose loans are ineligible for debt forgiveness under the plan. The respondents challenged whether the student debt relief program violated the Administrative Procedure Act’s notice-and-comment rulemaking procedures as they were not given the opportunity to provide feedback. (Covered by InfoBytes here.)
President Biden expressed his disappointment following the rulings, but announced new actions are forthcoming to provide debt relief to student borrowers. (See DOE fact sheet here.) The first is a rulemaking initiative “aimed at opening an alternative path to debt relief for as many working and middle-class borrowers as possible, using the Secretary’s authority under the Higher Education Act.” The administration also announced an income-driven repayment plan—the Saving on a Valuable Education (SAVE) plan—which will, among other things, cut borrowers’ monthly payments in half (from 10 to 5 percent of discretionary income) and forgive loan balances after 10 years of payments rather than 20 years for borrowers with original loan balances of $12,000 or less.
Agencies put out policy on CRE workouts
On June 29, the FDIC, OCC, Federal Reserve Board, and NCUA, in consultation with state bank and credit union regulators, jointly issued a final policy statement addressing prudential commercial real estate loan accommodations and workouts for borrowers experiencing financial difficulty. The policy statement applies to all supervised financial institutions and supersedes previous guidance issued in 2009. Building on existing supervisory guidance, the policy statement advises financial institutions “to work prudently and constructively with creditworthy borrowers during times of financial stress.” The policy statement (i) updates interagency supervisory guidance on commercial real estate loan workouts; (ii) adds a new section on short-term loan accommodations (for purposes of the policy statement, “an accommodation includes any agreement to defer one or more payments, make a partial payment, forbear any delinquent amounts, modify a loan or contract, or provide other assistance or relief to a borrower who is experiencing a financial challenge”); (iii) addresses relevant accounting standard changes on estimating loan losses; and (iv) provides updated examples on how to classify and account for loans modified or affected by loan accommodations or loan workout activity. The policy statement takes effect upon publication in the Federal Register.
CFPB issues guidance on small business data collection
On June 28, the CFPB released additional guidance to help financial institutions comply with the agency’s small-business lending data collection rule. The small business lending rule, which implements Section 1071 of the Dodd-Frank Act, requires financial institutions to collect and provide to the Bureau data on lending to small businesses with gross revenue under $5 million in their previous fiscal year. As previously covered by InfoBytes, the final rule prescribes a tiered compliance date schedule, with the earliest compliance date being October 1, 2024, for financial institutions that originate at least 2,500 covered small business loans in both 2022 and 2023 (financial institutions with lower origination amounts have later compliance dates).
To aid financial institutions, the Bureau updated several frequently asked questions to provide additional clarity on who is covered by the small business lending rule and to explain that a financial institution that meets the origination threshold in each of the two immediately preceding calendar years is a covered financial institution, regardless of whether the financial institution has a branch or office in a metropolitan statistical area. The FAQs also (i) outline qualified covered credit transactions and exemptions; (ii) provide a detailed breakdown of the types of transactions a financial institution must count when determining whether it satisfies the origination threshold; (iii) discuss whether a financial institution that is not subject to HMDA reporting is required to count HMDA-reportable loans as covered originations; (iv) address how to count a covered origination if multiple financial institutions were involved in originating the covered credit transaction or when a covered credit transaction is extended to multiple borrowers but only one is a small business; and (v) explain methodologies financial institutions can use to calculate estimated covered originations. In conjunction with the FAQs, the Bureau also released a compliance aid providing additional information covered during a recent Bureau presentation.
Biden announces FTC nominees
On July 3, President Biden announced his intention to nominate Andrew N. Ferguson and Melissa Holyoak to serve as Republican members of the FTC. Ferguson currently serves as the solicitor general of the Commonwealth of Virginia where he oversees appellate litigation of the state and its agencies. Prior to his time as solicitor general, Ferguson served as chief counsel to U.S. Senate Republican Leader Mitch McConnell, chief counsel for nominations and constitution to then-Judiciary Committee Chairman Lindsey Graham (R-SC), and senior special counsel to then-Judiciary Committee Chairman Chuck Grassley (R-IA). Ferguson also has extensive antitrust experience, including in litigation before the FTC and DOJ.
Holyoak is currently the solicitor general with the Utah Attorney General’s Office where she oversees areas including civil appeals, criminal appeals, constitutional defense, and the antitrust and data privacy divisions. She is an experienced litigator, where much of her 20 years of practice has focused on consumer protection, Biden said. Before joining the Utah Attorney General’s Office, Holyoak was president and general counsel of the Hamilton Lincoln Law Institute, a Washington, D.C.-based public interest firm that represents consumers challenging unfair class actions and regulatory overreach.
Following the announcement, FTC Chair Lina M. Khan issued a statement congratulating the nominees. The two seats have been vacant since former Commissioner Christine Wilson announced her resignation earlier in the year (covered by InfoBytes here).
FFIEC releases 2022 HMDA data
On June 29, the Federal Financial Institutions Examinations Council (FFIEC) released the 2022 HMDA data on mortgage lending transactions at 4,460 covered institutions (an increase from the 4,338 reporting institutions in 2021). Available data products include: (i) the Snapshot National Loan-Level Dataset, which contains national HMDA datasets as of May 1; (ii) the HMDA Dynamic National Loan-Level Dataset, which is updated on a weekly basis to reflect late submissions and resubmissions; (iii) the Aggregate and Disclosure Reports, which provide summaries on individual institutions and geographies; (vi) the HMDA Data Browser where users can customize tables and download datasets for further analysis; and (v) the Loan/Application Register for filers of 2022 HMDA data.
The 2022 data includes information on 14.3 million home loan applications, of which 11.5 million were closed-end and 2.5 million were open-end. The Snapshot revealed that an additional 287,000 records were from financial institutions making use of the Economic Growth, Regulatory Relief, and Consumer Protection Act’s partial exemptions that did not designate closed-end or open-end status. Observations from the data relative to the prior year include: (i) the percentage of mortgages originated by non-depository, independent mortgage companies decreased, accounting for “60.2 percent of first lien, one- to four-family, site-built, owner-occupied home-purchase loans, down from 63.9 percent in 2021”; (ii) the percentage of closed-end home purchase loans for first lien, one- to four-family, site-built, owner-occupied properties made to Black or African American borrowers increased from 7.9 percent in 2021 to 8.1 percent in 2022, while the share of these loans made to Hispanic-White borrowers decreased slightly from 9.2 percent to 9.1 percent and the share made to Asian borrowers increased from 7.1 percent to 7.6 percent; and (iii) “Black or African American and Hispanic-White applicants experienced denial rates for first lien, one- to four-family, site-built, owner-occupied conventional, closed-end home purchase loans of 16.4 percent and 11.1 percent respectively, while the denial rates for Asian and non-Hispanic-White applicants were 9.2 percent and 5.8 percent respectively.”
Nevada to regulate student loan servicers and lenders
On June 14, the Nevada governor signed AB 332 (the “Act”) which provides for the licensing and regulation of student loan servicers. The Act also implements provisions for the regulation of private education loans and lenders. Among other things, the Act requires, subject to certain exemptions, persons servicing student loans to obtain a license from the Commissioner of Financial Institutions. Specifically, the Act states that a person seeking to act as a student loan servicer is exempt from the application requirements only if the commissioner determines that the person’s servicing performed in the state is conducted pursuant to a contract awarded by the U.S. Secretary of Education.
The Act also outlines numerous requirements relating to licensing applications, including that the commissioner may participate in the Nationwide Multistate Licensing System and Registry (NMLS), and may instruct NMLS to act on his or her behalf to, among other things, collect and maintain records of applicants and licensees, collect and process fees, process applications, and perform background checks. The commissioner is also permitted to enter into agreements or sharing arrangements with other governmental agencies, the Conference of State Bank Supervisors, the State Regulatory Registry, or other such associations. Additional licensing provisions set forth requirements relating to licensing renewals, reinstatements, surrenders, and denials; liquidity standards; and bond requirements. The commissioner is also granted general supervisory, investigative, and enforcement authority relating to student loan servicers and student education loans and may impose civil penalties for violations of the Act’s provisions. The commissioner must conduct investigations and examinations at least once a year (with licensees being required to pay for such investigations and examinations). The Act further provides that the student loan ombudsman shall enter into an information sharing agreement with the office of the attorney general to facilitate the sharing of borrower complaints.
With respect to private education lenders, the Act establishes certain protections for cosigners of private education loans and prohibits private education lenders from accelerating the repayment of a private education loan, in whole or in part, except in cases of payment default. A lender may be able to accelerate payments on loans made prior to January 1, 2024, provided the promissory note or loan agreement explicitly authorizes an acceleration based on established criteria. The Act also sets forth responsibilities for lenders in the case of the total and permanent disability of a private education loan borrower or cosigner, including cosigner release requirements. Additional provisions outline prohibited conduct and create requirements and prohibitions governing lenders’ business practices. Furthermore, private education lenders are not exempt from any applicable licensing requirements imposed by any other specific statute.
The Act becomes effective immediately for the purpose of adopting any regulations and performing any preparatory administrative tasks that are necessary to carry out the provisions of the Act and on January 1, 2024 for all other purposes.
Maryland says crypto enforcement could affect money transmitter licensure
On June 22, the Maryland Commissioner of Financial Regulation issued an advisory on recent enforcement actions by Maryland and federal securities enforcement agencies against cryptocurrency-related businesses that could potentially impact businesses pursuing money transmitter licensure. The actions allege certain businesses offered products constituting securities while they were only licensed as money transmitters by the Commissioner of Financial Regulation. The state takes “character and fitness” into consideration for licensure and although the Commissioner does not enforce securities laws, he or she must consider violations of law, including violations of Maryland securities law, when determining whether to grant licenses. The advisory reads, “compliance with law, particularly Maryland law, regardless of whether or not the law falls within the Commissioner’s purview, must be considered when determining whether a licensee warrants the belief that business will be conducted lawfully, and thus whether the licensee is, or remains, qualified for licensure.” Moreover, violations of securities laws could form the grounds for action by the Commissioner against a licensee, “including but not limited to, an action seeking to revoke a license.”
Rhode Island enacts provisions for real estate appraisal
On June 20, the Rhode Island state governor signed SB 850 (the “Act”), which amends the Real Estate Appraiser Certification Act and the Real Estate Appraisal Management Company (AMC) Registration Act for consistency with federal laws and recommendations from the appraisal subcommittee. Among other things, the Act includes new terminology, including “covered transaction” and “state-licensed real estate appraiser.” This Act sets forth numerous additional provisions, one of which requires that appraisals must be performed by licensed or certified appraisers unless they are specifically exempt under federal law. Also amended are state-certified appraisers and state-licensed appraisers’ classifications. Specifically, the text defining residential property appraisal is replaced with a general statement that requirements for certification and licensing of appraisers will be “as required by the appraiser qualifications board of the appraisal foundation.” Another addition addresses the continuing education requirement for state-licensed and state-certified real estate appraisers, which now stipulates that up to one-half of an individual’s continuing education requirement may be completed by participation in certain educational activities approved by the board. Concerning registration, the Act contains a new subsection, detailing that AMCs cannot be registered in the state if any owner (an individual who owns more than 10 percent) of the AMC fails to submit to a background check or any owner is determined by the director to not have good moral character. Among other amendments, the Act also stipulates that registration is now valid for only one year (previously two years) after issuance.
The Act is effective upon passage.