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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

  • 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

  • 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

  • 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

  • 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

  • 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

  • VA issues guidance for noncompliant interest rate reduction refinance loans

    Agency Rule-Making & Guidance

    On April 20, the Veterans Benefits Administration (VA) issued Circular 26-20-16, which provides guidance for noncompliant interest rate reduction refinance loans (IRRRLs). The guidance notes that the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act) provides statutory criteria that affect whether the VA can guarantee refinance loans. In VA Circular 26-19-22, the VA notified lenders that an IRRRL must meet the requirements of the Act to receive and retain the full amount of VA’s guarantee. As such, Circular 26-20-16 sets forth requirements for IRRRLs, including enterprise level reporting and loan level reporting. The circular also discusses loan seasoning issues and the VA’s oversight of lender actions. The circular is rescinded April 1, 2023.

    Agency Rule-Making & Guidance Department of Veterans Affairs IRRRL EGRRCPA Consumer Lending Refinance

  • Virginia caps interest and fees charged under short-term loans

    State Issues

    On April 22, the Virginia legislature enacted HB 789, which amends certain provisions of the Virginia Consumer Protection Act (VCPA) related to consumer lending. Specifically, the provisions increase the maximum short-term loan from $500 to $2,500, and sets the duration of these loans to a minimum of four months and a maximum of 24 months, subject to exceptions. Interest and fees that may be charged on a short-term loan are capped at an annual rate of 36 percent, plus a maintenance fee. In addition, licensed lenders are required to make a reasonable attempt to verify a borrower’s eligibility and may not collect fees and charges that exceed 50 percent of the original loan amount if such amount is $1,500 or less, or 60 percent of the original loan amount if the original amount is greater than $1,500. Additional amendments include provisions that (i) update the requirements for motor vehicle title loans, including prohibiting loans to borrowers with outstanding title loans, and prohibiting licensees from collecting or receiving credit insurance premiums and charges for ancillary products, among other things; (ii) make a violation of the bill’s provisions a prohibited practice subject to enforcement under the VCPA; (iii) allow licensed lenders to use the services of access partners, subject to certain conditions; (iv) provide that installment loans must be between $300 and $35,000 to be paid in substantially equal installment payments, with terms of no fewer than six and no more than 120 months; and (iv) outline short-term loan advertising requirements. Persons required to be licensed under these provisions must apply for a license on or before October 1, 2020. Licenses will take effect January 1, 2021 for those issued by the State Corporation Commission prior to this date.

    State Issues State Legislation Consumer Lending Consumer Finance Interest Rate Auto Finance

  • Colorado banking regulator will not criticize “any” efforts to adjust loan terms

    State Issues

    On April 8, the Colorado Division of Banking issued guidance to state-chartered banks encouraging them to take measures to assist borrowers impacted by Covid-19, including halting foreclosures and providing a 90 day deferment on payment for all consumer loans. The division noted that while state-chartered banks are not required to comply with these requests, any efforts to modify existing loan terms will not be subject to examiner criticism.

    State Issues Covid-19 Colorado Bank Compliance Bank Charter Foreclosure Mortgages Consumer Lending

  • West Virginia issues stay at home order

    State Issues

    On March 23, the West Virginia governor issued a stay at home order requiring non-essential businesses and operations to temporarily cease operations. Essential businesses and operations include financial and insurance institutions, including banks and banking services such as ATM services, currency exchanges, consumer lenders, credit unions, appraisers, title companies, financial markets, trading and futures exchanges, payday lenders, affiliates of financial institutions, professional debt collectors and related creditor service workers, workers engaged in payment clearing and settlement, wholesale funding, and capital markets activities, entities that issue bonds, related financial institutions, institutions selling financial products, insurance companies, underwriters, agents, brokers, and related insurance claims and agency services. Additionally, essential businesses and operations include those businesses that sell, manufacture, or supply other essential businesses and operations with the support of materials necessary to operate. The order becomes effective at 8:00 PM on March 24, 2020, and remains in effect until terminated by subsequent executive order.

    State Issues West Virginia Covid-19 Consumer Lending Consumer Finance

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