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On January 16, the FHFA issued a notice requesting public comment on prospective policy changes to its residential energy retrofitting programs, or Property Assessed Clean Energy (PACE) programs. According to the request for comment, PACE programs are “financed through special state legislation enabling a ‘super-priority lien’ over existing and subsequent first mortgages.” Because the loans are only recorded in tax rolls and not in land records, they do not show up in title searches. This may potentially cause problems for prospective buyers and mortgage lenders. Additionally, the programs are not uniform across states and the GSEs cannot buy properties encumbered by PACE loans.
Comments must be received by March 16.
On January 9, the CFPB and the Utah attorney general’s office announced that the first of the American Consumer Financial Innovation Network’s (ACFIN) joint office hours will be held in Salt Lake City, Utah on January 30. The CFPB’s announcement states that the office hours are intended to “provide innovators with the opportunity to discuss issues such as financial technology, innovative products or services, regulatory sandboxes, no action letters, and other matters related to financial innovation with officials from the CFPB and state partners.” As previously covered by InfoBytes, the CFPB, along with a number of state regulators, established ACFIN in September with the aim of reducing “regulatory burdens” and increasing “regulatory certainty for innovative financial products and services.” Members of ACFIN currently include state AGs from Alabama, Alaska, Arizona, Colorado, Georgia, Indiana, South Carolina, Tennessee, and Utah; and state financial regulators from Florida, Georgia, Missouri, and Tennessee. ACFIN membership is open to any state and federal partners interested in joining.
On January 8, the New York governor released a proposal that would, among other things, expand the entities subject to NYDFS’ enforcement authority and harmonize state regulator authority to bring actions against entities engaging in unfair, deceptive, or abusive acts or practices with federal authority. Proposed within the 2020 State of the State agenda are several initiatives designed to increase the state’s oversight and enforcement of the financial services industry. Key measures include:
- Abusiveness claims. The proposal would make New York consumer protection law consistent with federal law by aligning the state’s UDAAP powers with those of the CFPB, thereby empowering state authorities to bring abusiveness claims under state law.
- Eliminate certain exemptions. The proposal would end exemptions from state oversight for certain, unspecified consumer financial products and services. “With the current federal administration reducing the number and breadth of enforcement actions brought by the CFPB, it is crucial that state consumer protection laws apply to all the same consumer products and services subject to Dodd-Frank,” the proposal states.
- Closing loopholes and creating a level playing field. Under the proposal, state-licensed cryptocurrency companies would be required to pay assessment fees similar to other financial services companies. Currently, only supervised entities licensed under the state’s insurance law or banking law are required to pay assessments to NYDFS to cover examination and oversight costs.
- Fines. In order to effectively deter illegal conduct, the proposal would amend the state’s insurance law to increase fines. Additionally, instead of the current Financial Services Law (FSL) penalty of $5,000 per violation, the governor proposes “capping penalties at the greater of $5,000, or two times the damages, or the economic gain attributed to the violation,” while also updating the FSL to provide “explicit authority for [NYDFS] to collect restitution and damages.”
- Debt collection. Debt collectors under the proposal would be required to be licensed by NYDFS, thus allowing the department to examine and investigate suspected abuses. Additionally, NYDFS’ new oversight authority would allow it to bring punitive administrative actions against debt collectors, which may result in significant fines or the loss of a license. The proposal would also codify the FTC’s rule prohibiting confessions of judgment in consumer loans.
As previously covered by InfoBytes, the proposal would also, among other things, expand access to safe and affordable financial services through a collaborative initiative between the state’s Community Development Financial Institutions, NYDFS, and other state agencies designed to improve outreach and financial literacy education to the unbanked and underserved communities.
California governor proposes strengthening state consumer protection authority and increasing financial innovation
On January 10, the California governor submitted his proposal for California’s 2020-2021 state budget, which would, among other things, include the creation and administration of the California Consumer Protection Law (Law). The governor’s budget summary indicates that “[t]he federal government’s rollback of the CFPB leaves Californians vulnerable to predatory businesses and leaves companies without the clarity they need to innovate.” The proposed Law is intended to provide “consumers with more protection against unfair and deceptive practices when accessing financial services and products.” To create and administer the Law, the proposed budget contemplates the expansion of the Department of Business of Oversight’s (DBO) authority to “protect consumers” and “foster the responsible development of new financial products.” In light of the expanded role, the governor also proposed renaming the DBO to the Department of Financial Protection and Innovation. The governor’s budget includes an allocation to the DBO of a $10.2 million Financial Protection Fund and 44 positions in 2020-2021, which would increase to $19.3 million and 90 positions in 2022-2023 for creating and implementing the Law.
According to the DBO’s website, the DBO currently “provides protection to consumers and services to businesses engaged in financial transactions” and “oversees the operations of state-licensed financial institutions, including banks, credit unions, money transmitters, issuers of payment instruments and travelers checks, and premium finance companies.” Under the governor’s budget proposal summary, in addition to the DBO’s current functions, the DBO will have greater authority to “pursue unlicensed financial service providers not currently subject to regulatory oversight such as debt collectors, credit reporting agencies, and financial technology (fintech) companies, among others.”
The budget proposal summary provides that the DBO’s new activities will include:
- Offering services to educate consumers (e.g., older Americans, students, military service members, and recent immigrants).
- Licensing and examining industries that are currently under-regulated.
- Analyzing market patterns and developments for evidence-based policies and enforcement.
- Enforcing against unfair, deceptive, and abusive practices.
- Establishing a new Financial Technology Innovation Office, which will be tasked with proactively promoting “responsible development of new consumer financial products.”
- Providing legal support for the administration of the Law.
- Expanding administrative and IT staff to support the DBO’s increased authority.
The details of the Governor’s budget proposal have not yet been published.
On January 9, the CFPB announced that it filed a complaint in the U.S. District Court for the Central District of California against a mortgage lender, a mortgage brokerage, and several student loan debt relief companies (collectively, “the defendants”), for allegedly violating the FCRA, TSR, and FDCPA. In the complaint, the CFPB alleges that the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products. The Bureau asserts that the reports of more than 7 million student loan borrowers were actually resold or provided to companies engaged in marketing student loan debt relief services.
According to the complaint, “using or obtaining prescreened lists to send solicitations marketing debt-relief services is not a permissible purpose under FCRA.” The complaint alleges that the defendants violated the TSR by charging and collecting advance fees before first “renegotiat[ing], settl[ing], reduc[ing], or otherwise alter[ing] the terms of at least one debt pursuant to a settlement agreement, debt-management plan, or other such valid contractual agreement executed by the customer,” and prior to “the customer ma[king] at least one payment pursuant to that settlement agreement, debt management plan, or other valid contractual agreement between the customer and the creditor or debt collector.” The CFPB further alleges that the defendants violated the TSR and the CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education.
The Bureau is seeking a permanent injunction to prevent the defendants from committing future violations of the FCRA, TSR, and CFPA, as well as an award of damages and other monetary relief, civil money penalties, and “disgorgement of ill-gotten funds.”
On January 2, the Missouri attorney general filed a petition for preliminary and permanent injunction in Missouri Circuit Court against a nonprofit trust and its registered agent (the defendants) alleging the defendants deceived thousands of state residents by marketing memberships in the trust with the promise that the pooled resources would fund “to-be-completed homes.” The AG alleges that the defendants solicited consumers to attend meetings, purchase memberships, and pay monthly dues, and also asked members to provide additional funds to go towards appliances and other fixtures for the homes. However, the agent defendant allegedly admitted that none of the promised homes were constructed or otherwise provided to the members.
The AG further contends that “none of the solicited funds were ever used or invested towards providing a home to any of the members,” and were instead used to cover the trust’s operating expenses. According to the AG, the defendants’ actions violate state law and constitute false promises, omissions of material fact, and deception. The AG seeks injunctive relief “up to and including prohibiting and enjoining [d]efendants . . . from owning or operating organizations that sell or manage real estate that solicit upfront payments for goods or services, or that solicit charitable contributions.” The AG also seeks restitution for member losses, a fine equal to 10 percent of the restitution amount, a $1,000 fine per violation, and compensation for the state’s costs in pursuing the case.
On January 4, the New York governor unveiled a proposal to expand access to safe and affordable financial services as part of the 2020 State of the State agenda. Included is a proposal to create the “Excelsior Banking Network” (Network), which is intended to “expand financial inclusion and access to affordable bank accounts and credit products” by providing $25 million in seed funding for the state’s Community Development Financial Institutions (CDFI) Fund. The Network—formed through a collaborative initiative between CDFIs, NYDFS, and other state agencies—will, among other things, engage in outreach and financial literacy education to the unbanked and expand available microcredit. “CDFIs are local financial service providers with locations throughout New York State, and often are the sole provider of banking and other financial services in low-income communities that are not served by traditional banks and financial institutions,” the announcement stated. Funding will be leveraged by participating CDFIs through targeted investments in underserved communities.
The governor also proposed the creation of a statewide Office of Financial Inclusion and Empowerment (Office), which is intended to meet the financial services needs of low- and middle-income New York consumers. The Office will be based at NYDFS, and “will maintain a centralized list of financial services counseling providers—across housing, student loan, debt, and general financial literacy—throughout the [s]tate and coordinate state and local services aimed at expanding access to credit and enhancing financial empowerment.” According to the announcement, the Office will also “incubate new programs to expand access to safe and affordable banking services, credit and financial education; coordinate public-private partnerships; and foster provision of high-quality, low-cost financial products statewide.”
On December 31, the CFPB released its annual report to Congress on college credit card agreements. The report was prepared pursuant to the CARD Act, which requires card issuers to submit to the CFPB the terms and conditions of any agreements they make with colleges, as well as certain organizations affiliated with colleges. The CFPB cited data from 2018 showing that (i) the number of college card agreements in effect declined “both year-over-year as well as in comparison to 2009,” the first year data was collected; (ii) no new issuers submitted data to the Bureau for the first time since 2011, and two issuers left the market; and (iii) agreements with alumni associations continue to dominate the market based on most metrics. The complete set of credit card agreement data collected by the Bureau can be accessed here.
On December 30, the FTC announced that the U.S. District Court for the District of Nevada had, on December 5, granted its motion for summary judgment in an action against a mortgage loan modification operation (operation) for allegedly violating the FTC Act and the Mortgage Assistance Relief Services Rule (MARS Rule). The January 2018 complaint alleged that the operation had engaged in unfair or deceptive acts or practices when it “preyed on financially distressed homeowners” by making false representations in advertising that its mortgage relief services could prevent foreclosures and “substantially lower” mortgage interest rates, as previously covered here. Additionally, the complaint charged that the operation used “doctored logos” in correspondence with consumers to give the impression that it was “affiliated with, endorsed or approved by, or otherwise associated with the federal government’s Making Home Affordable loan modification program,” and similarly claimed affiliation or “special arrangements” with the holder or servicer of the consumer’s loan. The court agreed with the FTC’s allegations, finding that the operation violated the FTC Act and the MARS Rule. The court entered a monetary judgment against the operation of over $18.4 million as equitable relief, which the FTC may use to compensate consumers harmed by the operation’s business practices. To the extent that an FTC representative determines that direct consumer redress is impracticable or money remains after redress is completed, the FTC may apply any remaining funds to other equitable relief (including consumer information remedies) that it determines is reasonably related to the practices alleged in the complaint. The court also permanently enjoined the operation from marketing or providing any secured or unsecured debt relief product or service, as well as from making deceptive statements to consumers regarding any other financial product or service.
On December 13, the U.S. District Court for the Eastern District of Virginia granted final approval of a $12 million settlement to resolve allegations including unjust enrichment, usury, and violations of RICO against tribe-related lenders (lenders) that plaintiffs claim charged extremely high interest rates on consumer payday loans. According to the memorandum in support of the settlement, one lender’s “operation constituted a “rent-a-tribe,” where it originated high-interest loans through entities formed under tribal law in an attempt to evade state and federal laws.” The parties filed a preliminary settlement agreement in June. According to the approval order, the court found that “the settlement agreement is fair, adequate and reasonable,” reaffirmed certification of a final settlement class, and additionally found that “the class representatives have and continue to adequately represent settlement class members.” This settlement ends three separate putative class actions against the lenders.
- Andrew W. Schilling to moderate "Expectations of in-house counsel from their law firm partners" at the ACI's 7th Annual Advanced Forum on False Claims and Qui Tam
- Sasha Leonhardt to discuss "Cybersecurity basics for compliance staff" at a NAFCU webinar
- Buckley Webcast: Tips for navigating changes to the FHA recertification process
- Daniel P. Stipano to discuss "A 20/20 view on 2020’s legislative and regulatory outlook" at the ACAMS Anti-Financial Crime and Public Policy Conference
- Kari K. Hall and Michelle L. Rogers to discuss "Overdrafts and regulatory trends" at the CLE Alabama Banking Law Update
- Kathryn L. Ryan to discuss "Industry open forum session on NMLS usage" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to discuss "Regulating innovative consumer lending products" at the NMLS Annual Conference & Training
- Daniel P. Stipano to moderate "Washington update" at the 17th Puerto Rican Symposium of Anti Money Laundering 2020 conference
- Melissa Klimkiewicz to discuss "Private flood insurance updates" at the MBA's Servicing Solutions Conference & Expo 2020
- APPROVED Checkpoint Webcast: CFL overview
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS moneylaundering.com 25th Annual International AML & Financial Crime Conference