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Financial Services Law Insights and Observations


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  • Mississippi reenacts licensing requirements

    On March 17, the Mississippi governor signed HB 1075, which will, among other things, reenact licensing provisions for lenders who provide “credit availability transactions” to customers through fully amortized loans paid over a term of four to 12 months. Under the act, transactions made by unlicensed lenders will be null and void. The act outlines licensing requirements, including those related to annual renewal fees, bond deposits, and expedited licensing requests. The provisions also allow the commissioner to “issue a temporary license authorizing the operation of a credit availability business on the receipt of an application for a license involving principals and owners that are substantially identical to those of an existing licensed credit availability licensee.” Temporary licenses will remain effective until a determination is made on the status of a permanent license. The act also outlines provisions for check cashing business, including licensing requirements and limits on other activities. The act takes effect July 1.

    Licensing State Issues State Legislation Consumer Lending Check Cashing

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  • Virginia reaches settlement with open-end credit plan lender

    State Issues

    On March 4, the Virginia attorney general announced a settlement with an open-end credit plan lender, resolving allegations that the company violated Virginia consumer finance laws by (i) imposing a $100 origination fee on loans during a statutorily-mandated finance charge-free grace period; (ii) “[e]ngaging in a pattern of repeat transactions and ‘rollover’ loans with thousands of consumers who were required to close accounts that they paid down to a $0 balance,” but were then allowed to open new accounts for which new fees were charged on a monthly basis; and (iii) charging interest on accounts at an annual rate of 273.75 percent, far exceeding the 36 percent limit that open-end credit lenders are allowed to charge. Under the terms of the settlement, the company is permanently enjoined from further violating Virginia’s consumer finance laws, and is required to pay $850,000 in restitution and $150,00 in attorneys’ fees and settlement costs. The company must also provide more than $10 million in debt forbearance on “accounts that remain unpaid and that were not converted to a separate loan program in October 2018.”

    State Issues State Attorney General Enforcement Consumer Protection Consumer Lending Predatory Lending

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  • Illinois legislature passes 36 percent rate cap for all consumer loans

    State Issues

    On January 13, the Illinois legislature unanimously passed the “Predatory Loan Prevention Act,” (available in House Amendment 3 to SB 1792), which would prohibit lenders from charging more than 36 percent APR on all consumer loans. Specifically, the legislation would apply to any non-commercial loan, including closed-end and open-end credit, retail installment sales contracts, and motor vehicle retail installment sales contracts. For calculation of the APR, the legislation would require lenders to use the system for calculating a military annual percentage rate under the Military Lending Act. Any loan made in excess of 36 percent APR would be considered null and void and no entity would have the “right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan.” Additionally, each violation would be subject to a fine up to $10,000.

    State Issues Consumer Lending APR Military Lending Act Usury Interest Rate State Legislation

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  • National bank settles DACA discrimination class action


    On January 8, the U.S. District Court for the Northern District of California granted final approval to a settlement resolving allegations brought by a national class and a California class against a national bank concerning the denial of credit to recipients who held valid and unexpired Deferred Action for Childhood Arrivals (DACA) status. In a motion for preliminary settlement filed last June, the plaintiffs claimed that the bank allegedly determined DACA recipients to be ineligible for direct auto financing because of their noncitizen status, even though “[t]here is no federal or state law or regulation that prohibits banks from lending to non-citizens generally, or DACA recipients specifically, based on their status as non-citizens.” The bank moved to dismiss, claiming the plaintiffs failed to plead facts sufficient to state claims under the Equal Credit Opportunity Act and the Fair Credit Reporting Act. The parties engaged in discovery, but ultimately agreed to stay the case and engaged a mediator to assist with settlement discussions.

    Under the terms of the settlement, the bank is required to provide verified California class members up to $2,500 per claim and national class members up to $300 pending submission of a valid claim. The settlement also provides injunctive relief, a service award to the class representative, attorneys’ fees and costs, and settlement administration costs. Additionally, the bank will amend its direct auto lending practices in order “to extend loans to current and valid DACA recipients on the same terms and conditions as U.S. citizens,” and will provide class counsel an annual status report detailing the status of its programmatic relief for a two year period.

    Courts DACA Consumer Lending Auto Finance ECOA FCRA Consumer Finance

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  • FDIC finalizes industrial bank rules

    Agency Rule-Making & Guidance

    On December 15, the FDIC approved a final rule (with accompanying fact sheet) that requires certain conditions and commitments for approval or non-objection to certain filings involving industrial banks and industrial loan companies (collectively, “industrial banks”), such as deposit insurance, change in bank control, and merger filings. The final rule is substantially similar to the proposed rule issued by the FDIC in March (covered by InfoBytes here) and applies to industrial banks whose parent company is not subject to consolidated supervision by the Federal Reserve Board. Specifically, the FDIC is now requiring a covered parent company to enter into written agreements with the FDIC and the industrial bank to: (i) address the company’s relationship with the industrial bank; (ii) require capital and liquidity support from the parent company to the industrial bank; and (iii) establish appropriate recordkeeping and reporting requirements. Additionally, the final rule requires prospective covered companies to agree to a minimum of eight commitments, which, for the most part, the FDIC has previously required as a condition of granting deposit insurance to industrial banks. 

    The final rule makes four substantive changes to the proposal: (i) requiring compliance from covered entities on or after the effective date of the rule rather than only after; (ii) requiring additional reporting regarding systems for protecting the security, confidentiality, and integrity of consumer and nonpublic personal information; (iii) increasing the threshold limiting the parent company’s representation on the board of the subsidiary industrial bank from 25 percent to less than 50 percent; and (iv) modifying the restrictions on appointments of directors and executives to apply only during the first three years of becoming a subsidiary of a covered parent company.

    The final rule is effective April 1, 2021.

    Agency Rule-Making & Guidance FDIC ILC Commercial Lending Consumer Lending

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  • Virginia AG reaches $1.2 million settlement with internet lender

    State Issues

    On September 29, the Virginia attorney general announced a roughly $1.2 million settlement with a Nashville-based online lender to resolve allegations that it violated the Virginia Consumer Protection Act by misrepresenting the method through which consumer disputes would be resolved. According to the AG, the lender offers short-term loans in the form of open-end cash advances carrying periodic interest rates as high as 360 percent. The contracts borrowers sign require the lender to resolve disputes through either arbitration or small claims court; however, the AG claimed that the lender hired counsel, filed nearly 2,000 collection cases against borrowers in general district courts throughout Virginia, and obtained default judgments and accepted payments from garnishees. Under the terms of the settlement, the lender—which does not admit liability—is required to (i) pay restitution of approximately $359,000; (ii) credit “attorney’s fees and costs awarded as part of the judgments, which total in excess of $830,000”; and (iii) pay $10,000 in civil penalties and $10,000 in attorney’s fees. The lender has also agreed to a permanent injunction to prevent the occurrence of future violations.

    State Issues State Attorney General Enforcement Consumer Lending

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  • California DBO reports installment consumer lending by California nonbanks increased 68 percent in 2019

    State Issues

    On September 9, the California Department of Business Oversight (CDBO) released its annual report covering the 2019 operations of finance lenders, brokers, and Property Assessed Clean Energy program administrators licensed under the California Financing Law. Key findings of the report include (i) “installment consumer lending by nonbanks in California increased more than 68 percent” from $34 billion to $57 billion, largely due to real estate-secured loans, which more than doubled to $47.3 billion; (ii) consumer loans under $2,500 accounted for 40.2 percent of the total number of consumer loans made in 2019, with unsecured loans making up 98.7 percent of these loans; and (iii) online consumer loans increased by 69.1 percent with the total principal amount of these loans increasing by 134 percent. CDBO also noted in its release that 58 percent of loans ranging from $2,500 to $4,999—the largest number of consumer loans—carried annual percent rates of 100 percent or higher. “This report reflects the final year in which there are no state caps on interest rates for loans above $2,500,” CDBO Commissioner Manual P. Alvarez stated. He further noted that “[b]eginning this year, the law now limits permissible interest rates on loans of up to $10,000. Next year’s report will reflect the [CDBO’s] efforts to oversee licensees under the new interest caps.”

    State Issues CDBO Installment Loans Nonbank Consumer Lending

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  • FDIC Quarterly Banking Profile reports strong loan growth but declining income

    Federal Issues

    On June 16, the FDIC released the first quarter 2020 Quarterly Banking Profile for FDIC-insured institutions, reporting that the aggregate net income for FDIC-insured institutions totaled $18.5 billion in the first quarter of 2020, a decline of $42.2 billion (69.6 percent) from a year ago, reflecting deteriorating economic activity as a result of the Covid-19 pandemic. The FDIC emphasized, however, that total loan and lease balances rose 4.2 percent from the previous quarter, as “[a]lmost all major loan categories reported quarterly increases.” Over the past year, total loan and lease balances increased 8 percent—the highest annual growth rate since the first quarter of 2008, the FDIC reported. According to remarks provided by FDIC Chairman Jelena McWilliams, while several industry sectors and financial markets were adversely affected by the Covid-19 pandemic, “banks effectively supported individuals and businesses during this downturn through lending and other critical financial services.”

    Federal Issues FDIC Covid-19 Consumer Lending

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  • California DBO takes action against company for PACE fraud

    State Issues

    On May 27, the California Department of Business Oversight (CDBO) filed an order to ban an Encino-based company from the Property Assessed Clean Energy (PACE) industry for allegedly engaging in fraudulent behavior. According to the press release, the CDBO received 30 complaints from 2018 to 2019 alleging the company solicited homeowners by advertising a “free government program,” but used the homeowners’ personal financial information to submit contracts to PACE program administrators with forged electronic signatures. Additionally, complaints alleged various other fraudulent and illegal actions including, (i) the creation of false email accounts to have the PACE financing documents routed to the agents instead of the homeowners; and (ii) the impersonation of homeowners’ voices on state law required completion calls. The CDBO also asserts that the company sold products at three to five times the usual industry rate and used “high-pressure” sales tactics directed at the elderly and non-primary English speakers. In addition to the Desist and Refrain Order, which demands the company discontinue illegal practices and stop soliciting PACE contract, the CDBO notes that a similar but separate order will also be filed against the company president, who is a PACE solicitor agent.

    State Issues PACE Programs California CDBO Consumer Finance Consumer Lending Fraud

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  • Oklahoma prohibits local governments from regulating supervised licensees

    State Issues

    On May 21, the Oklahoma governor signed SB 1682, which prohibits any state municipality or other political subdivision from regulating certain practices of businesses and occupations licensed, regulated, and controlled under the supervision of the state’s Department of Consumer Credit. Specifically, local governments may not regulate interest rates, fees, or physical locations, or prevent licensed lenders from engaging in lending practices authorized under the state law. Additionally, SB 1682 allows a person whose rights are violated under the provisions of this section the right to bring an action for injunctive relief. The act takes effect November 1.

    State Issues State Legislation Oklahoma Consumer Lending

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