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NYDFS proposes check-cashing fee regulations
On June 15, NYDFS issued a proposed check cashing regulation following an emergency regulation announced in February that halted annual increases on check-cashing fees and locked the current maximum fee set last February at 2.27 percent (covered by InfoBytes here). The proposed regulation establishes a new fee methodology which evaluates the needs of licensees and consumers who use check cashing services. Two tiers of fees for licensed check cashers are recommended: (i) the maximum fee that a check casher may charge for a public assistance check issued by a federal or state government agency (including checks for Social Security, unemployment, retirement, veteran’s benefits, emergency relief, housing assistance, or tax refunds) is set at 1.5 percent; and (ii) the maximum fee a check casher is permitted to charge for all other checks, drafts, or money orders is $1 or 2.2 percent, whichever is greater. NYDFS added that starting January 31, 2027 (and annually every five years thereafter), licensed check cashers may request an increase in the maximum fees established. Comments on the proposed regulation will be accepted for 60 days.
District Court issues judgment against student debt relief operation
On June 10, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against an individual defendant who participated in a deceptive debt-relief operation. As previously covered by InfoBytes, in 2019, the Bureau, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against the student loan debt relief operation for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees. In the third amended complaint, the Bureau and the states alleged that since at least 2015, the debt relief operation violated the CFPA, TSR, FDCPA, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. In addition, the Bureau and the states claimed that the debt relief operation engaged in deceptive practices by, among other things, misrepresenting: (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness for borrowers; and (iii) their ability to actually lower borrowers’ monthly payments. Moreover, the debt relief operation allegedly failed to inform borrowers that it was their practice to request that the loans be placed in forbearance and also submitted false information to student loan servicers to qualify borrowers for lower payments.
Under the terms of the final judgment, in addition to various forms of injunctive relief, the individual defendant must pay a $1 civil money penalty to the Bureau and $5,000 each to Minnesota, North Carolina, and California. The individual defendant is also “liable, jointly and severally, in the amount of $95,057,757, for the purpose of providing redress to Affected Consumers,” although his obligation to pay this amount is “suspended based on [his] inability to pay.”
CFPB looking at relationship banking at large institutions
On June 14, the CFPB issued a request for information (RFI) seeking public comments “related to relationship banking and how consumers can assert the right to obtain timely responses to requests for information about their accounts from banks and credit unions with more than $10 billion in assets, as well as from their affiliates.” Section 1034(c) of the CFPA gives consumers the right to access information, including supporting written documentation, in a timely manner about their accounts from these large financial institutions. The Bureau noted in its announcement that to date, the agency “has not enforced or issued additional policy guidance under this legal provision.”
The Bureau pointed out that many large financial institutions are shifting toward algorithmic banking and moving away from relationship banking. As a result of this decline, some consumers are unable to receive customized advice, basic information, or have their problems addressed in a timely fashion, the Bureau said. The RFI seeks input on, among other things, (i) the types of information requested by consumers, how they are using this information, and what information they are unable to obtain from their banks; (ii) differences in accessing information when consumers visit in person, call, or access information online; (iii) customer service representative compensation and incentives; (iv) customer service obstacles that may adversely impact consumers’ ability to bank; (v) obstacles consumers face that adversely affect their ability to bank; (vi) unique obstacles facing immigrants, rural communities, and older consumers; (vii) call center practices; and (viii) changes in customer engagement due to the Covid-19 pandemic.
In addition to examining consumers’ relationships with their depository institutions, CFPB Director Rohit Chopra stated that the Bureau intends to closely examine methods to improve the bank merger process to ensure mergers are meeting the convenience and needs of communities.
Comments on the RFI are due 30 days after publication in the Federal Register.
OFAC issues Russia-related general licenses and FAQs
On June 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued Russia-related General License (GL) 8C, which authorizes (with certain enumerated exceptions) transactions related to energy. According to the GL, all transactions prohibited by Executive Order (E.O.) 14024 involving entities that are related to energy are authorized, through December 5, 2022, under certain circumstances. OFAC also published amended FAQs, which provide further information on GL 8C, and clarify Russian sanction information under E.O. 14024, among other things.
9th Circuit to rehear en banc whether tribal lenders can arbitrate RICO claims
On June 6, a majority of nonrecused active judges on the U.S. Court of Appeals for the Ninth Circuit vacated a previously issued opinion that said tribal lenders could arbitrate Racketeer Influenced and Corrupt Organizations Act (RICO) class action claims, saying it will rehear the case en banc. As previously covered by InfoBytes, last September the 9th Circuit panel majority concluded that “an agreement delegating to an arbitrator the gateway question of whether the underlying arbitration agreement is enforceable must be upheld unless that specific delegation provision is itself unenforceable.” The panel reviewed whether California residents who received loans from an online lender were allowed to pursue class RICO claims based on allegations that they were charged interest rates exceeding state limits from lenders claiming tribal immunity. The district court granted class certification and ruled that the entire arbitration agreement, including provisions containing a class action waiver, was unenforceable. On appeal, the panel majority cited to the U.S. Supreme Court’s decision in Rent-A-Center, West, Inc. v. Jackson, which determined, among other things, that when a party challenges an entire agreement—not just an arbitration provision—deciding “gateway” issues such as enforceability must be delegated to an arbitrator. “[W]hen there is a clear delegation provision, that question is . . . for the arbitrator to decide so long as the delegation provision itself does not eliminate parties’ rights to purse their federal remedies,” the majority wrote. The dissenting judge held, however, that the panel majority “misunderstood the effect of the choice-of-law provisions in the agreements,” arguing that the provisions curtail an arbitrator’s authority by allowing application of “only tribal law and a small and irrelevant subset of federal law,” thus preventing an arbitrator “from applying the law necessary to determine whether the delegation provisions and the arbitration agreements are valid.” He further contended that the panel majority’s decision diverged from decisions reached by several sister circuits, which “have consistently condemned the arbitration agreements embedded in tribal internet payday loan agreements, including those used by the very same lenders as in this case.”
U.S., UK collaborate on privacy-enhancing tech prize challenges
On June 13, the White House announced that the U.S. and UK governments are developing privacy-enhancing technology prize challenges to help address cross-border money laundering. The White House highlighted that the estimated $2 trillion of cross-border money laundering which happens annually could be better detected if improvements were made to information sharing and collaborative analytic efforts. However, research shows that this process “is hindered by the legal, technical and ethical challenges involved in jointly analyzing sensitive information,” the White House said. Privacy-enhancing technologies (PETs) could play a transformative role in addressing the global challenges of financial crime, the White House explained, noting that PETs can allow “machine learning models to be trained on high quality datasets collaboratively among organizations, without the data leaving safe environments.” Moreover, “[s]uch technologies have the potential to help facilitate privacy-preserving financial information sharing and analytics,” thus “allowing suspicious types of behavior to be identified without compromising the privacy of individuals, or requiring the transfer of data between institutions or across borders.”
Opening this summer, the challenges (developed between the White House Office of Science and Technology Policy, the U.S. National Institute of Standards and Technology, the U.S. National Science Foundation, the UK’s Center for Data Ethics and Innovation, and Innovate UK) will allow innovators to develop state-of-the-art privacy-preserving federated learning solutions to help combat barriers to the wider use of these technologies without the uncertainty of potential regulatory implications. Innovators will engage with the U.K.’s Financial Conduct Authority and Information Commissioner’s Office and the Financial Crimes Enforcement Network. Acting FinCEN Director Himamauli Das announced that the agency “is pleased to support this important initiative to advance the development of a building block for protecting the U.S. financial system from illicit finance.”
CA approves commercial financing disclosure regs
On June 9, the California Office of Administrative Law (OAL) approved the Department of Financial Protection and Innovation’s (DFPI) proposed commercial financial disclosure regulations. The regulations implement commercial financing disclosure requirements under SB 1235 (Chapter 1011, Statutes of 2018). (See also DFPI press release here.) As previously covered by InfoBytes, in 2018, California enacted SB 1235, which requires non-bank lenders and other finance companies to provide written, consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances.
Notably, SB 1235 does not apply to (i) depository institutions; (ii) lenders regulated under the federal Farm Credit Act; (iii) commercial financing transactions secured by real property; (iv) a commercial financing transaction in which the recipient is a vehicle dealer, vehicle rental company, or affiliated company, and meets other specified requirements; and (v) a lender who makes no more than one applicable transaction in California in a 12-month period or a lender who makes five or fewer applicable transactions that are incidental to the lender’s business in a 12-month period. The act also does not cover true leases (but will apply to bargain-purchase leases), commercial loans under $5,000 (which are considered consumer loans in California regardless of any business-purpose and subject to separate disclosure requirements), and commercial financing offers greater than $500,000.
California released four rounds of draft proposed regulations between 2019 and 2021 to solicit public comments on various iterations of the proposed text (covered by InfoBytes here). In conjunction with the approved regulations, DFPI released a final statement of reasons that outlines specific revisions and discusses the agency’s responses to public comments.
Among other things, the regulations:
- Clarify that a nondepository institution providing technology or support services to a depository institution’s commercial financing program is not required to provide disclosures, provided “the nondepository institution has no interest, or arrangement or agreement to purchase any interest in the commercial financing extended by the depository institution in connection with such program, and the commercial financing program is not branded with a trademark owned by the nondepository institution.”
- Provide detailed instructions for the content and layout of disclosures, including specific rows and columns that must be used for a disclosure table and the terms that must appear in each section of the table, that are to be delivered at the time a specific type of commercial financing offer equal to or less than $500,000 is extended.
- Cover the following commercial loan transactions: closed-end transactions, commercial open-end credit plans, factoring transactions, sales-based financing, lease financing, asset-based lending transactions. Disclosure formatting and content requirements are also provided for all other commercial financing transactions that do not fit within the other categories.
- Require disclosures to provide, among other things, the amount financed; itemization of the amount financed; annual percentage rate (the regulations provide category-specific calculation instructions); finance charges (estimated and total); payment methods, including the frequency and terms for both variable and fixed rate financing; details related to prepayment policies; and estimated loan repayment terms.
The regulations take effect December 9.
Illinois amends Collection Agency Act provisions
On May 27, the Illinois governor signed HB 5220, which makes various amendments to provisions related to the state’s Collection Agency Act. Among other things, the amendments strike language repealing specified provisions and add, amend, and strike certain definitions, including amending “financial institution” to include “consumer installment lenders, payday lenders, sales finance agencies, and any other industry or business that offers services or products that are regulated under any Act administered by the [Director of the Division of Financial Institutions].” The amendments further provide that an adjudicated finding by the FTC or other federal or state agency that shows a licensee violated the FDCPA or its rules is grounds for disciplinary action. Also, at the discretion of the Secretary (after having first received the recommendation of the Collection Agency Licensing and Disciplinary Board), an “accused person’s license may be suspended or revoked, if the evidence constitutes sufficient grounds for such action.” Moreover, the amendments restore language providing that the Department of Financial and Professional Regulation may obtain written recommendations from the Collection Agency Licensing and Disciplinary Board “regarding standards of professional conduct, formal disciplinary actions, and the formulation of rules affecting these matters.” The Act takes effect January 1, 2023.
Massachusetts amends mortgage lender/broker licensing provisions
Recently, the Massachusetts Office of Consumer Affairs and Business Regulation, Division of Banks announced final amendments effective May 27 to certain provisions of Regulation 209 CMR 42.00, which establishes procedures and requirements for the licensing and supervision of mortgage lenders under M.G.L. c. 255E. (See also redlined version of the final amendments here.) Specifically, the amendments:
- Add and amend certain definitions. The amendments add new terms such as “Bona Fide Nonprofit Affordable Homeownership Organization” and “Instrumentality Created by the United States or Any State,” and amend “Mortgage Broker” to also include a “person who collects and transmits information regarding a prospective mortgage loan borrower to a third party” that conducts any one or more of the following activities: (i) collects a prospective borrower’s Social Security number; (ii) views a prospective borrower’s credit report; (iii) obtains a prospective borrower’s authorization to access or view the borrower’s credit report or credit score; (iv) accepts an application; or (v) issues a prequalification letter.
- Add licensing exemptions. The amendments provide a list of persons that are not required to be licensed in the state as a mortgage broker or mortgage lender. These include: (i) lenders making less than five mortgage loans and persons acting as mortgage brokers fewer than five times within a 12 consecutive-month period; (ii) banks, national banking associations, federally chartered credit unions, federal savings banks, or any subsidiary or affiliate of the above; (iii) banks, trust companies, savings banks, and credit unions “organized under the laws of any other state; provided, however, that such provisions shall apply to any subsidiary or affiliate, as described in 209 CMR 42.0”; (iv) nonprofit, public, or independent post-secondary institutions; (v) charitable organizations; (vi) certain real estate brokers or salesmen; and (vii) persons whose activities are “exclusively limited to collecting and transmitting” certain quantities of specified information regarding a prospective borrower to a third party.
The amendments also specifically provide that “a person who collects and transmits any information regarding a prospective mortgage loan borrower to a third party and who receives compensation or gain, or expects to receive compensation or gain, that is contingent upon whether the prospective mortgage loan borrower in fact obtains a mortgage loan from the third party or any subsequent transferee of such information, is required to be licensed as a mortgage broker.”
Judges disagree that “psychological states” can never support standing under FDCPA
On June 8, a majority of judges on the U.S. Court of Appeals for the Seventh Circuit denied a plaintiff-appellee’s petition for rehearing en banc in a case concerning the collection of time-barred debt. In April, the 7th Circuit vacated a $350,000 jury award against a debt collector in an FDCPA action, holding that the plaintiff lacked Article III standing. The defendant sent the plaintiff a letter offering to resolve her defaulted credit card debt at a discount. The letter included a disclosure stating that “because of the age of the debt” it would not sue or report the debt to a credit agency and that payment or nonpayment would not affect her credit score. The plaintiff sued, claiming the letter “surprised and confused” her and was in violation of Sections 1692e(2), 1692e(10), and 1692f of the FDCPA. The district court certified a class and granted summary judgment in favor of the plaintiff “reasoning that the misleading nature of the letter risked real harm to the interests that Congress sought to protect with the FDCPA.” A jury awarded the class $350,000 in damages. On appeal, the panel disagreed, explaining that the plaintiff never made a payment as a result of receiving the letter, nor did she “promise to do so or otherwise act to her detriment in response to anything in or omitted from the letter.” Calling the defendant to dispute the debt and contacting an attorney for legal advice “are not legally cognizable harms” and not enough to provide the “basis for a lawsuit,” the court wrote, adding that “[p]sychological states induced by a debt collector’s letter” are not enough to establish standing.
The majority of the 7th Circuit agreed with the panel’s ruling and voted not to hold an en banc rehearing. However, four judges dissented, arguing that the plaintiff’s claims “should easily satisfy” standing requirements established by the U.S. Supreme Court. “The emotional distress, confusion, and anxiety suffered by [plaintiff] in response to this zombie debt collection effort fit well within the harms that would be expected from many of the abusive practices,” the dissent said. “That’s true regardless of whether the debtor actually made a payment or took some other tangible action in response to them.” According to the dissent, the majority is “painting with too broad a brush” in finding that “[e]motional distress and other ‘psychological states’ can never support standing under the FDCPA.” This reasoning also overlooks close historical parallels in common and constitutional law that provide remedies for intangible injuries caused by many violations of the FDCPA and other consumer-protection statutes, the dissent added.