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Court grants summary judgment in payday lender suit
On August 23, a Municipal Court in Ohio granted a defendant’s motion for summary judgment in a case involving payday lending. According to the order, the plaintiff’s complaint alleged that the defendant, in April 2019, executed a Line of Credit and Security Agreement with a lender in the amount of $1,101, and agreed to repay amounts advanced within a 30-day billing cycle pursuant to certain fees and a 24.99 percent interest rate. The complaint further alleged that defendant failed to make timely payment, and thereafter plaintiff, as assignee of the lender, sought to enforce the agreement. In her answer, the defendant denied entering any such agreement and characterized the transaction as “a $500 loan,” asserting that this case “involves an illegal scheme by [the short-term cash lender, the mortgage lender, and the plaintiff] to issue and collect illegal payday loans under a scheme to attempt to evade compliance with new state lending laws. The plaintiff asserted counterclaims for violations of the Short-Term Loan Act, the Mortgage Loan Act, Ohio Consumer Sales Practices Act, and for civil conspiracy.
On motion for summary judgment, the defendant argued that she was entitled to judgment on “Plaintiff's complaint because the parties’ April 2019 agreement ‘is void because it was made in violation of Ohio lending and consumer laws.’” The defendant presented two arguments: (i) the lender is not licensed under the Short-Term Loan Act to issue a loan less than $1000; and (ii) the lender is “prohibited from engaging in acts or practices to evade the prohibition against Mortgage Loan Act registrants issuing loans for $1,000 or less or that have a duration of one year or less.”
In granting summary judgment for the defendant, the court found that the underlying transaction was an “open-end loan under the plain language” of the Mortgage Loan Act, and that it was not a loan for $1,000 or less or one with a duration of one year or less under the Mortgage Loan Act, but that by using the security agreement framework, the lender engaged in an act or practice to evade the Mortgage Loan Act’s prohibition. The court found that the evidence showed defendant went to the lender for a simple loan under $1,000 and was provided on that day a check for $501. The court found further that, “it would appear [the lender] gave Defendant what she was seeking, namely a short-term loan … but without complying with any of the myriad restrictions applicable to such loans under the Short-Term Loan Act.” The court held that the security agreement framework did not stand because the “legally convoluted” structure did not benefit the parties in any meaningful way, and “the only explanation the Court can discern as to why that structure was used is that it was a stratagem for eluding the restrictions of the Short-Term Loan Act that would have otherwise applied to the parties’ transaction.”
Biden announces student debt cancellation
On August 24, President Biden announced a three-part plan for student loan relief. According to the Fact Sheet, the cumulative federal student loan debt is around $1.6 trillion and rising for more than 45 million borrowers. The President announced that the Department of Education (DOE) will, among other things: (i) provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE; (ii) provide up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples; (iii) propose a new income-driven repayment plan and cap monthly payments for undergraduate loans at 5 percent of a borrower’s discretionary income; and (iv) “propos[e] a rule that borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government, receive appropriate credit toward loan forgiveness.” For income-driven repayment, Biden announced that the DOE is proposing a rule to, among other things: (i) reduce to 5 percent from 10 percent the amount that borrowers have to pay each month for undergraduate loans; (ii) guarantee that borrowers making less than 225 percent of the federal minimum wage are not required to make payments on their federal undergraduate loans; (iii) forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less; and (iv) cover the borrower’s unpaid monthly interest so that no borrower’s loan balance will grow when making monthly payments, “even when that monthly payment is $0 because their income is low.” The Fact Sheet also noted that if all borrowers claim the relief to which they are entitled under this plan, these actions “will [p]rovide relief to up to 43 million borrowers, including cancelling the full remaining balance for roughly 20 million borrowers,” will benefit primarily low- and -middle income borrowers, assist borrowers of all ages, and help narrow the racial wealth gap and promote equity by targeting those with the highest economic need.
The same day, the DOE announced a final extension of the pause on student loan repayment, interest, and collections through December 31. As previously covered by InfoBytes, in April, Biden extended the moratorium on collecting student loans through August 31, about which the DOE stated will allow “all borrowers with the paused loans to receive a ‘fresh start’ on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing.”
Earlier this week, the DOE announced that it will provide over $10 billion in debt relief for over 175,000 borrowers in 10 months through the Public Service Loan Forgiveness (PSLF) program. The recent announcement follows changes the DOE announced in October 2021 (covered by InfoBytes here) that, among other things, gave qualifying borrowers a time-limited PSLF waiver that allowed all payments to count towards PSLF regardless of loan program or payment plan. These include payments made on loans under the Federal Family Education Loan (FFEL) Program or Perkins Loan Program. The recently announced changes provide that student borrowers receive credit for payments made on loans from FFEL, Perkins Loan Program, and other federal student loans. To qualify for the program under the temporary changes, such borrowers must apply to consolidate their loans into a Direct Consolidation Loan by October 31. Additionally, the DOE announced that “under the temporary changes, past periods of repayment count whether or not borrowers were on a qualifying repayment plan or whether or not borrowers made payments.” To date, $32 billion in student loan relief has been approved for over 1.6 million borrowers.
CFPB finds relationship between medical care assistance and debt collections
On August 24, the CFPB published a blog post exploring the connection between eligibility for financial assistance for medical care and the prevalence of medical collections. According to the Bureau, Americans spent $4.1 trillion on health care in 2020, and continue to incur significant medical expenses, despite private insurance coverage and government programs. The Bureau expects that number to reach $6.2 trillion by 2028. The Bureau found that as household incomes decrease, a higher percentage of consumers have medical collections. For example, the Bureau reported that of those with household earnings between $20,001 and $40,000 in 2018, consumers had at least one medical collection on their credit report. The Bureau also reported that among people in households with children and with incomes under $40,000, “38.1 percent had at least one medical collection on their credit report in December 2018,” which is approximately three times the rate for people without children earning the same amount. The Bureau noted that three nationwide credit reporting companies recently began removing paid medical collections from credit reports and will, starting in 2023, stop reporting medical collections below $500. However, the Bureau explained that many low-income consumers will not benefit from this change as their existing collections exceed $500, and therefore access to financial assistance continues to be important for such consumers. The Bureau concluded that more “research could explore the extent to which differences in legislative and regulatory environments influence the provision of financial assistance and lead to better financial outcomes for consumers.”
The same day, the Bureau announced that Director Rohit Chopra will host a virtual discussion to explore challenges around nursing home debt collection practices and the impact they can have on financial wellbeing on September 8. According to the Bureau, the discussion “is a chance for the CFPB to listen and learn about consumer advocates’ and individuals’ experiences with nursing home debt and debt collection practices.”
FTC will not extend comment period on NPRM seeking to ban auto lending junk fees and bait-and-switch tactics
On August 23, the FTC issued a decision declining to extend the public comment period for its notice of proposed rulemaking (NPRM) to ban “junk fees” and “bait-and-switch” advertising tactics related to the sale, financing, and leasing of motor vehicles by dealers. As previously covered by InfoBytes, the NPRM seeks to prohibit dealers from making deceptive advertising claims to entice prospective car buyers and would also: (i) prohibit dealers from charging fees for “fraudulent add-on products” and services that—according to the FTC—do not benefit the consumer; (ii) require clear, written, and informed consent (including the price of the car without any optional add-ons); and (iii) require dealers to provide full, upfront disclosure of costs and conditions, including the true “offering price” (the full price for a vehicle minus only taxes and government fees), as well as any optional add-on fees and key financing terms. Dealers would also be required to maintain records of advertisements and customer transactions. In declining to extend the comment period, the FTC said the public has been afforded “a meaningful opportunity to provide the Commission with comments regarding its rulemaking proposal.” The comment period will end September 12.
House Republican concerned about Treasury sanctions on virtual currency mixer
On August 23, Representative Tom Emmer (R-MN) sent a letter to Treasury Secretary Janet Yellen raising privacy and due process concerns related to recent “first-of-their-kind” sanctions issued against a virtual currency mixer accused of allegedly laundering more than $7 billion in virtual currency, including more than $455 million stolen by a Democratic People’s Republic of Korea state-sponsored hacking group that is separately subject to U.S. sanctions (covered by InfoBytes here). The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) said the sanctions resulted from the company “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, a cyber-enabled activity originating from, or directed by persons located, in whole or in substantial part, outside the United States that is reasonably likely to result in, or has materially contributed to, a significant threat to the national security, foreign policy, or economic health or financial stability of the United States and that has the purpose or effect of causing a significant misappropriation of funds or economic resources, trade secrets, personal identifiers, or financial information for commercial or competitive advantage or private financial gain.” (Covered by InfoBytes here.)
Emmer stressed, however, that adding the company to OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List seemed to diverge from previous OFAC precedent since several of the company’s designated “smart contract addresses” do not appear to be a person, entity, or property, but rather are distributed technological tools that are not controlled by any entity or natural person. “OFAC has a long, commendable history of utilizing financial sanctions to enhance the national security of the United States,” the letter said. “Nonetheless, the sanctioning of neutral, open-source, decentralized technology presents a series of new questions, which impact not only our national security but the right to privacy of every American citizen.” Emmer referenced May 2019 guidance issued by FinCEN (covered by InfoBytes here), which he said drew “a distinction between ‘providers of anonymizing services’ (including ‘mixers’)” which are subject to Bank Secrecy Act obligations and “‘anonymizing software providers’” which are not. Emmer recognized that OFAC is not bound by FinCEN regulations, but said it is his understanding that the sanctioned company is “simply the anonymizing software deployed on the blockchain.”
Emmer requested clarification from Treasury on several questions, including the factors OFAC considers when designating technology to the SDN List and how OFAC plans to “uphold the appeals process for the sanctioned addresses that have no ability to appeal the sanction to OFAC” because they “are smart contracts with no agency, corporate or personal, and as such cannot speak for themselves or those whose funds they hold.”
Maryland orders debt-consolidation operation to pay more than $2 million in penalties and restitution
On August 22, the Maryland attorney general issued a final order against a debt-consolidation operation, resolving allegations that the respondents collected hundreds of thousands of dollars from consumers to help them consolidate and pay off outstanding debt but failed to provide the promised services. According to the AG, the respondents deceptively promised that their services would save consumers money, allow consumers to pay off outstanding debts in a shorter timeframe than the original loan terms, and improve consumers’ credit scores. Consumers were charged upfront fees ranging from $11,000 to $118,000 for services plus additional amounts that were supposed to go toward paying off their outstanding debts. However, instead of providing the promised services, the respondents allegedly used most of the funds for their own personal use while consumers were threatened with foreclosure and had their cars repossessed. The final order permanently enjoins the respondents from violating the Maryland Consumer Protection Act, the Maryland Mortgage Assistance Relief Services Act, the Maryland Credit Services Business Act, and the Maryland Debt Management Services Act. The respondents are also required to pay a $1.2 million penalty and must refund all monies collected from consumers who did not receive the promised services. The AG estimates that total payments will exceed $2 million.
CFPB “on track” to issue Section 1071 rulemaking by March 31
On August 22, the CFPB filed its tenth status report in the U.S. District Court for the Northern District of California, as required under a stipulated settlement reached in February 2020 with a group of plaintiffs, including the California Reinvestment Coalition, related to the collection of small business lending data. The settlement (covered by InfoBytes here) resolved a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act, which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses. The current status report states that the Bureau is on track to issue the Section 1071 final rule by March 31, 2023—a deadline established by court order in July (covered by InfoBytes here).
Find continuing Section 1071 coverage here.
FHFA to establish advisory committee on affordable, equitable, and sustainable housing
On August 23, FHFA announced plans to establish a federal advisory committee on affordable, equitable and sustainable housing. The committee’s activities will focus on Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and “their respective roles in providing a reliable source of liquidity and funding to support housing finance in the single-family and multifamily housing markets.” The committee will provide advice and input regarding affordable, equitable, and sustainable housing needs, including barriers to accessing such housing and long-term sustainability, and will advise on any regulatory or policy changes necessary to address these matters. FHFA will solicit applications and nominations for memberships in an upcoming Federal Register notice and is seeking individuals engaged in the financing, development and/or administration of affordable, equitable, and sustainable housing and housing policy who have experience in areas such as fair housing, fair lending, civil rights, and single-family/multifamily lending and servicing.
California appellate court overturns ruling for collector that stapled note to summons
On August 23, the California Sixth Appellate District overturned summary judgment in favor of a collector (defendant) that was sued for FDCPA and the Rosenthal Fair Debt Collection Practices Act violations. According to the court, the plaintiff incurred an unpaid medical debt, which was referred to the defendant for collection. The defendant sent the plaintiff eight letters; however, the plaintiff was allegedly not aware that the hospital assigned the debt to a debt collector and did not pay the debt. The defendant filed a collection suit against the plaintiff, seeking to recover the unpaid medical debt. The defendant stapled a typewritten note to the summons, which read, “If you have any questions regarding this matter, please contact: []” in English and Spanish. The plaintiff filed a complaint, accusing the defendant of violating the FDCPA and the Rosenthal Act, alleging that “it was unlawful for [the defendant] to send the attachment with the summons and the complaint because the attachment appeared to be a message from the court and did not contain language disclosing that it was sent by a debt collector.” The trial court granted the defendant’s motion for summary judgment, ruling that the communication was lawful, and denied the plaintiff’s cross-request for summary judgment.
On the appeal, the defendant argued that "the attachment is not a ‘communication’ within the meaning of either statute, on the theory that the attachment itself says nothing about the debt." However, the appellate court wrote that the note was not sent “in a vacuum: The attachment, summons, and complaint comprised a collection of documents delivered by a process server—personally to [the plaintiff’s] girlfriend and then by mail to [the plaintiff].” The appellate court further noted that the reference to “this matter” in the note “unmistakably signified the litigation initiated by the accompanying complaint pleading [the plaintiff’s] indebtedness and the amount and source of indebtedness in a common count cause of action.” With regard to whether the note was a communication in connection with the collection of a debt, the appellate court noted that it “fail[ed] to conceive of any subject other than debt collection [the defendant] might think the communication was in connection with. The message in the attachment refers to the existence of a debt, conveys information regarding the debt, and serves the purpose of debt collection by enticing the recipient to contact the debt collector.” The appellate court concluded that “[b]y omitting the mandatory disclosure that this attachment was from [the defendant], a debt collector, [the defendant] made it reasonably likely that the least sophisticated consumer would believe the suggestion to call [the defendant] was from the court that issued the summons to which the suggestion was affixed. [The defendant’s] communication was therefore deceptive.”
FHA requires mortgagees to provide UEI
On August 23, the FHA announced in Mortgagee Letter (ML) 2022-14 that all FHA-approved lenders and mortgagees, and institutions seeking FHA approval, must provide an active Unique Entity Identifier (UEI) as part of their institution data in the Lender Electronic Assessment Portal (LEAP) or application for FHA approval. Additionally, the ML, among other things: (i) informs mortgagees how to register for an UEI; (ii) provides instructions on updating the institution profile in LEAP; and (iii) invites feedback from interested parties for 30 calendar days from the ML’s issuance date. The new provisions must be implemented no later than December 31.