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  • California appellate court concludes lender’s arbitration provision unenforceable

    Courts

    On January 11, the Court of Appeals of the State of California affirmed the denial of an auto lender’s motion to compel arbitration, concluding that the arbitration clause was invalid and unenforceable. According to the opinion, in May 2019, consumers filed a class action complaint alleging the lenders charged unconscionable interest rates in violation of California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA). The company moved to compel arbitration, which the consumers opposed, arguing that the agreement was “procedurally and substantively unconscionable,” and that the California Supreme Court decision in McGill v. Citibank, N.A. (covered by a Buckley Special Alert here, holding that a waiver of the plaintiff’s substantive right to seek public injunctive relief is not enforceable) applied. The trial court denied the motion to compel arbitration, concluding that the McGill rule applied and that the injunctive relief provision could not be severed from the rest of the arbitration agreement because severability did not apply to the class waiver provision.

    On appeal, the state appellate court agreed with the trial court, concluding that the McGill rule applied. Specifically, the appellate court concluded that the injunctive relief the consumers were seeking “encompasses all consumers and members of the public,” and “an injunction under the CLRA against [the lender]’s unlawful practices will not directly benefit the Customers because they have already been harmed and are already aware of the misconduct.” Moreover, the appellate court determined that there is no precedent holding that “the remedy of public injunctions under CLRA and UCL should be limited to false advertising claims.” The court further concluded that the class waiver was not severable, stating that the lender’s argument that the arbitration agreement could not be determined void until after an appellate court reviews the viability of the class waiver was “illogical.” Accordingly, the appellate court affirmed the denial of the motion to arbitrate.

    Courts State Issues Arbitration Lending Consumer Finance

  • Rhode Island extends its work from home provisions for lenders

    State Issues

    On December 22, 2020, the Rhode Island Department of Business Regulation extended interim guidance permitting mortgage loan originators, lenders, loan brokers, and exempt company registrants to work from home, even if the home is not a “licensed branch” or located outside of Rhode Island (previously covered here, here, and here.) To take advantage of this exemption, the individual must maintain certain specified data security provisions. This extension is set to expire March 31, 2021.

    State Issues Covid-19 Rhode Island Lending Mortgage Origination Broker-Dealer Licensing

  • Rhode Island regulator extends work from home guidance for lenders

    State Issues

    On September 28, the Rhode Island Department of Business Regulation, Banking Division, extended previous guidance (previously covered here and here) issued to mortgage loan originators, lenders, loan brokers, and exempt company registrants. The guidance permits working from home, even if the home is located outside of Rhode Island or is not a licensed branch, so long as specified data security provisions are met. The department extended this guidance until December 31, 2020.

    State Issues Covid-19 Rhode Island Lending Mortgage Origination Broker Broker-Dealer Mortgage Broker Licensing Mortgage Licensing Privacy/Cyber Risk & Data Security

  • District court dismisses six PPP agent fee class actions

    Federal Issues

    On September 21, the U.S. District Court for the Southern District of New York dismissed six class actions alleging that the Paycheck Protection Program (PPP) and its implementing regulations entitle accountants who assist borrowers in securing PPP loans to a portion of the fees banks receive from the Small Business Administration (SBA).The six class actions were brought by a collection of accountants and accounting firms alleging that the banks did not pay agent fees reportedly due under the PPP, even though they had not entered into agreements with the banks to receive the fees. The district court, following a similar decision by a Florida federal district court (covered by InfoBytes here), dismissed the class actions, concluding that absent an agreement to do so, banks are not required to pay agent fees under the CARES Act—which created the PPP—and its implementing regulations. Specifically, the court noted that although the law and implementing regulations impose limits on agents fees, those limits “do not entitle agents to fees but simply regulate how such fees would be paid when they are to be paid.” The court also rejected a variety of state law and common law claims, which were “largely premised on the same theory,” and dismissed all six class actions in their entirety.

    Federal Issues Covid-19 CARES Act SBA Agent Lending Courts

  • 9th Circuit affirms some of Oakland’s claims against national bank

    Courts

    On August 26, the U.S. Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the district court’s decision to partially dismiss an action brought by the City of Oakland, alleging a national bank violated the Fair Housing Act (FHA) and California Fair Employment and Housing Act. As previously covered by InfoBytes, Oakland alleged that the national bank violated the FHA and the California Fair Employment and Housing Act by providing minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, leading to disproportionate defaults and foreclosures causing (i) decreased property tax revenue; (ii) increases in the city’s expenditures; and (iii) reduced spending in Oakland’s fair-housing programs. The district court dismissed the City’s municipal expenditure claims, but allowed claims based on decreased property tax revenue to continue. The district court also held that the City could pursue its claims for injunctive and declaratory relief. 

    On appeal, the 9th Circuit affirmed the court’s denial of the bank’s motion to dismiss as to Oakland’s claims for decreased property tax revenue and the court’s dismissal of Oakland’s claims for increased city expenditures. Specifically, with respect to claims for reduced tax revenue, the appellate court concluded that the “FHA’s proximate-cause requirement is sufficiently broad and inclusive to encompass aggregate, city-wide injuries.” Based on allegations that the City could use statistical regression analysis “to precisely calculate the loss in property values in Oakland’s minority neighborhoods that is attributable to foreclosures caused by [the bank’s] predatory loans,” the 9th Circuit found that Oakland’s claim for decreased property tax revenues “has some direct and continuous relation to [the bank]’s discriminatory lending practices.” Regarding the City’s alleged municipal expenditure injuries, the appellate court agreed with the district court that Oakland’s complaint failed to account for independent variables that may have contributed or caused such injuries and that those alleged injuries therefore did not satisfy the FHA’s proximate-cause requirement. Finally, the appellate court held that the City’s claims for injunctive and declaratory relief were also subject to the FHA’s proximate-cause requirement, and that on remand, the district court must determine whether Oakland’s allegations satisfied this requirement.  

    Courts Fair Housing Fair Lending FHA Lending Consumer Finance Mortgages State Issues Appellate Ninth Circuit Fair Housing Act

  • ARRC updates fallback language for bilateral business loans

    Federal Issues

    On August 27, the Alternative Reference Rates Committee (ARRC) released updated recommended fallback language for market participants to use for new originations of LIBOR-referenced bilateral business loans. The proposed language is intended to align with revisions made to the recommended fallback language for syndicated loans (covered by InfoBytes here). The updated fallback language amends the previously proposed “hardwired” and the “hedged loan” approaches. ARRC emphasizes that “cash markets will benefit by adopting a more consistent, transparent and resilient approach to contractual fallback arrangements for new LIBOR products,” and reminds financial market participants that it does not recommend waiting “until a forward-looking term [Secured Overnight Financing Rate] SOFR exists to begin using SOFR in cash products.”

    Federal Issues ARRC LIBOR SOFR Lending

  • Texas Office of Consumer Credit updates guidance for regulated lenders

    State Issues

    On August 20, the Texas Office of the Consumer Credit Commissioner issued updated guidance, previously covered here, for regulated lenders navigating the Covid-19 crisis. The guidance: (1) encourages lenders to work with consumers, including by working out modifications to assist with payments, waiving fees and charges, suspending charged-off accounts, and suspending repossessions of collateral or foreclosure of real property, among other things; (2) reminds lenders of legal requirements for using electronic signatures; and (3) permits lenders to conduct regulated lending activity from unlicensed locations, subject to certain conditions.  The guidance is in effect through September 30, 2020, unless withdrawn or revised.

    State Issues Covid-19 Texas Consumer Credit Consumer Finance Lending Mortgages Foreclosure ESIGN Auto Finance Fintech

  • Kansas issues executive order temporarily prohibiting certain foreclosures and evictions

    State Issues

    On August 17, the Kansas governor issued Executive Order No. 20-61, which imposes restrictions on foreclosures and evictions. Banks and lending entities are prohibited from foreclosing on residential properties in Kansas where all defaults or violations of the mortgage are substantially caused by a financial hardship resulting from the Covid-19 pandemic, subject to certain exemptions. Landlords are similarly prohibited from evicting a residential tenant when all defaults or violations of the rental agreement are substantially caused by a financial hardship resulting from the pandemic. Banks, financial lending entities, or landlords initiating judicial foreclosure or eviction proceedings after August 17, 2020, bear the burden of pleading and proving that the foreclosure or eviction is not solely based on defaults or violations resulting from financial hardships resulting from the pandemic. The order does not apply to foreclosures initiated by the U.S. government.

    State Issues Covid-19 Kansas Mortgages Foreclosure Evictions Banking Lending

  • District court: Lender does not owe PPP fees to accountant without contract

    Courts

    On August 17, the U.S. District Court for the Northern District of Florida dismissed an action alleging an accounting firm is entitled to a portion of the fees paid by the Small Business Administration (SBA) to lenders making loans under the Paycheck Protection Program (PPP). According to the order, an accounting firm filed an action against a lender alleging the lender did not pay “agent fees” reportedly due to it under the PPP. The accounting firm argued that the PPP and its implementing regulation require lenders to pay agent fees “irrespective of whether there is an agreement between the agent or borrower and the lender to do so.” Moreover, the accounting firm asserted the fees were required based on “equitable principles [] under state common law,” because the lender was “aware of and benefitted from the work [the accounting firm] did on the borrowers’ PPP loan applications.”

    The district court dismissed the action, concluding that the CARES Act—which created the PPP—and its implementing regulation do not “require lenders to pay the agent’s fees absent an agreement to do so.” According to the court, the CARES Act establishes a ceiling on fees an agent may collect in preparing an application for a borrower and the applicable interim final regulation (IFR) “simply explains that, if an agent is to be paid a fee, the fee must be paid by the lender from the fee it receives from the SBA.” The court noted that the SBA’s existing Section 7(a) lending requirements establish that fees charged by an agent require a “compensation agreement” to be provided to the SBA, and because these existing Section 7(a) program requirements “do not conflict with the IFR, they apply to agents who assist borrowers in obtaining loans under the PPP.” Because there was no contractual agreement between the parties, the court concluded that the financial institution had no legal obligation to pay the accounting firm agent fees. Lastly, the court rejected the state common law claims, concluding that the accounting firm did not establish that it directly conferred a benefit on the financial institution, noting that the SBA fees were “merely an incidental benefit of [the accounting firm]’s work for the borrowers.”

    Courts Covid-19 SBA Agent Lending CARES Act

  • Louisiana Office of Financial Institutions extends emergency declarations to non-depository entities

    State Issues

    On July 24, the Louisiana Office of Financial Institutions extended emergency declarations for residential mortgage lenders, check cashers, bond for deed escrow agents and repossession agents, brokers and lenders licensed under the Louisiana Consumer Credit Law and Deferred Presentment and Small Loan Act, and pawnbrokers. The orders were previously covered here. Such entities are granted the authority to temporarily close licensed locations within Louisiana or to temporarily close and/or relocate to another location within the state. Mortgage loan originators are permitted to work from home, whether located in Louisiana or another state, even if the home is not registered with the LOFI. The declarations also provide instructions for notifying the LOFI of a temporary location change. The declarations will remain in effect as long as there is a public health emergency relating to Covid-19, or until rescinded or replaced.

    State Issues Covid-19 Louisiana Non-Depository Institution Mortgage Lenders Check Cashing Escrow Auto Finance Repossession Broker-Dealer Lending Consumer Credit Licensing Mortgage Origination

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