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Maryland and Tennessee Expand Use of Reporting Requirements for Money Services Businesses
As previously covered by InfoBytes, the Nationwide Licensing System (NMLS) for Money Services Businesses (MSBs) recently unveiled the MSB Call Report that standardizes and streamlines routine reporting requirements for state-licensed MSBs. On April 18, Maryland Governor Larry Hogan signed into law HB 182, which requires specified licensees to obtain and maintain a valid unique identifier and transfer licensing information to the NMLS. The law will go into effect July 1, 2017. Among those who must now register with NMLS are check cashers, collection agencies, consumer lenders, debt management service providers, credit service businesses, and sales finance companies. Licenses for mortgage lenders, mortgage originators, and money transmitters are already processed through NMLS. The Commissioner of Financial Regulation is charged with establishing a time period that is “not less 2 months within which a licensee must transfer licensing information to the NMLS.” Furthermore, at least 30 days before the transfer period begins, the Commissioner shall notify all licensees of the transfer period and provide instructions for the transfer of licensing information to NMLS.
On April 12, Tennessee Governor Bill Haslam enacted SB 1202, authorizing Tennessee’s Department of Financial Institutions to license industrial loan and thrift companies, title lenders, and individuals regulated under the Check Cashing Act or the Premium Finance Company Act through a multi-state automated licensing system. The law allows for the sharing of information—subject to specified confidentiality requirements—with state and federal regulatory officials having consumer finance industry oversight authority or finance industry oversight. Licenses for these types of entities will expire on December 31 of each year. The law includes staged effective dates, the first being July 1, 2017.
Supreme Court Hears Arguments on Whether a Debt Collector Who Purchases the Debt is Liable Under the FDCPA
On April 18, the United States Supreme Court heard oral argument in Henson v. Santander Consumer USA, Inc., Dkt. No. 16-349, on the question of “[w]hether a company that regularly attempts to collect debts it purchased after the debts had fallen into default is a ‘debt collector’ subject to the Fair Debt Collection Practices Act [FDCPA].” The case arose out of a class action filed by four consumers who had defaulted on automobile loans made by an auto lending affiliate of a major bank. The originator hired Respondent to collect the loans on behalf of the lender and Respondent later purchased the delinquent loans as part of a pool. Though Petitioners did not allege that debt collection was the principal purpose of the Respondent’s business, the consumer-plaintiffs had claimed that the Respondent regularly buys and attempts to collect defaulted debts, and that, in this instance, the Respondent engaged in conduct that violated the FDCPA after it bought the loans. The Petitioner needed to establish, among other things, that the Respondent was a debt collector under the FDCPA and that the loans were in default when they were acquired.
In March 2016, the U.S. Court of Appeals for the Fourth Circuit rejected the consumers’ arguments, concluding that the FDCPA “generally does not regulate creditors when they collect debt on their own account and that, on the facts alleged by the plaintiffs, [the defendant] became a creditor when it purchased the loans before engaging in the challenged practices.” Accordingly, the Fourth Circuit noted that the originator of the loans was irrelevant. In September 2016, the consumer-plaintiffs filed a cert petition with the Supreme Court, which was subsequently granted on January 13. Attorneys general from 28 states and the District of Columbia also joined in an amicus brief supporting the consumers’ argument.
At oral argument before the Supreme Court, the Petitioners cited 15 U.S.C. §1692a(6)(F) and argued that the debts are "owed" to the original lender, but are "due" to the debt buyer. As such, argued Petitioner, a debt buyer should be considered to be collecting debts “owed or due another,” and thus fall within the FDCPA definition of a “debt collector”. Respondent countered that “owed or due another” could only mean that the debt is currently owed to another person. However, Respondent argued, as a debt buyer, it was collecting debts owed to itself, and thus would not be a “debt collector” under the FDCPA. Both sides also presented policy-based arguments. Petitioner suggested that because Respondent was considered a “debt collector” before purchasing the loan, it could not remove itself from the scope of the FDCPA by purchasing the debts. Conversely, Respondent noted that, by purchasing essentially all of the original lender’s loans it had “stepped into [the lender]’s shoes.” Counsel emphasized that Respondent therefore fit the FDCPA definition of “creditor,” and, as a creditor, it had an incentive to maintain a positive relationship with consumers.
Nationwide Mortgage Licensing System Unveils New Money Services Businesses Call Report
On April 1, the Nationwide Mortgage Licensing System (NMLS) Money Services Businesses (MSB) unveiled “the first comprehensive report to consolidate state MSB reporting requirements and provide a database of nationwide MSB transaction activity.” It also allows licensees to report directly in NMLS for all states on a quarterly and annual basis. The release of the MSB Call Report culminates “a multi-year effort by state regulators to develop a tool to standardize and streamline routine reporting requirements for state-licensed Money Services Businesses”—including money transmitters, check cashers, and prepaid card issuers. The MSB Call Report contains three sections: (i) “company financial information”; (ii) “information about the licensee’s company and state level transactional activity”; (iii) “company permissible investments information”; (iv) “and transaction destination country information.” According to the MSB Call Report webpage, 18 state agencies will adopt the MSB Call Report for Q1 2017 reporting.
NMLS is the system of record for non-depository, financial services licensing or registration in participating state, territory and local agencies. Although NMLS does not grant or deny license authority, it does—in participating jurisdictions—serve as the official system for companies and individuals seeking to apply for, amend, renew and surrender licenses. NMLS is also the sole system of licensure for mortgage companies and the system of record for the registration of depositories, subsidiaries of depositories, and Mortgage Loan Originators (MLOs) under the CFPB’s Regulation G (S.A.F.E. Mortgage Licensing Act—Federal Registration of Residential Mortgage Loan Originators).
Additional information and a list of the state agencies that have adopted the report as of March 2017 can be accessed through the NMLS Resource Center.
CFPB’s Latest Fair Lending Report Focuses on Credit Discrimination
On April 14, the CFPB issued its fifth fair lending report to Congress, which outlines the Bureau’s efforts in 2016 as well as its plans for 2017. According to the report, in 2016, the CFPB (i) engaged in significant outreach to both consumers and lenders to better understand fair lending compliance and access to credit issues; (ii) worked with government regulators and agencies to protect and obtain reimbursement for harmed consumers; and (iii) assisted consumers with limited proficiency in English. For 2017, the report indicates that the Bureau intends to (i) evaluate whether lenders have “intentionally discouraged” potential applicants in minority neighborhoods from applying for credit; (ii) investigate whether mortgage or student loan borrowers who fall behind on payments face more difficulty in working out new payment plans because of their race, ethnicity, age, or gender; and (iii) further explore fair access to credit for woman- and minority-owned firms—all areas the Bureau characterizes as presenting “substantial risk of credit discrimination for consumers.”
Additional information on fair lending reports issued by the Bureau can also be found in BuckleySandler’s CFPB Resource Center.
California Department of Business Reaches $1.4 Million Settlement with Michigan-Based Mortgage Lender and Servicer
On April 10, the California Department of Business Oversight (DBO) announced a settlement with a California-licensed mortgage lender and servicer—whose principal place of business is based in Michigan—resolving allegations that the company violated California’s statutory restriction on per diem interest. California law prohibits lenders from “charging interest on mortgage loans prior to the business day that immediately precedes the day the loan proceeds are disbursed.” Pursuant to the consent order, the allegations against the company arose from two regulatory examinations conducted by DBO in 2011 and 2013, whereby the company—in order to avoid an enforcement action—agreed to cooperate fully with DBO’s request for audits, to refund per diem overcharges, and to consent to the issuance of the final order to pay refunds, penalties, and discontinue further violations. The terms of the consent order include $293,127 in refunds previously provided to approximately 3,400 borrowers for loans funded between August 2011 and May 2015, as well as future restitution to additional borrowers identified in required self audits of loans made between from June 2015 through February 2018. The order further requires the company to pay an additional $1.1 million in penalties for identified overcharges, as well as $125 for each additional violation discovered in the self audits.
New York Fed Unveils Community Advisory Group to Offer “Views and Perspectives” Held by Local Community Stakeholders
On April 12, the Federal Reserve Bank of New York (New York Fed) launched the “Community Advisory Group” (CAG)—a “private-sector advisory group,” that is composed of leaders from the non-profit sector and will meet at least three times a year to advise the New York Fed “on socio-economic and financial conditions faced by communities in the Second District” of the Federal Reserve System. According to the Community Advisory Group Charter, “[t]he primary goal of the Group is to present . . . views and perspectives on the economy and monetary policy held by individuals and households in a diverse set of communities.” The Charter also explains that the 10-15 Group members, selected by the New York Fed to serve a three year term, will be appointed “based on their ability to represent the views of one or more communities in the Second District.” The Group’s first meeting is scheduled for April 19.
CFPB Proposes Amendment to Regulation C to Clarify HMDA Rule
On April 13, the CFPB announced the release of its proposal to amend Regulation C (12 CFR Part 1003), the regulation that implemented the Home Mortgage Disclosure Act (HMDA) and requires lenders to collect, report and disclose data on home loan applications, originations, and purchases of mortgage loans. On October 15, 2015, the Bureau updated the HMDA reporting requirements to expand the data collection scope, while simultaneously streamlining certain existing requirements (see Special Alert: CFPB Adopts Significant Expansion of HMDA Reporting Requirements). According to the Bureau’s press release, the 2017 proposed amendment is intended to “help financial institutions comply with the 2015 HMDA Final Rule by clarifying the information they are required to collect and report about their mortgage lending.” Specifically, the regulation, as amended, will establish “transition rules” for both “loan purpose” and the “unique identifier” for the loan originator. The transition rules will also allow financial institutions to report “not applicable” for these two data points. Furthermore, the proposal will make additional amendments to clarify certain key terms, such as “temporary financing” and “automated underwriting system,” and create a new reporting exception for certain transactions associated with New York State agreements. Comments on the proposal will be due within 30 days of its publication in the Federal Register.
Additional information and materials covering the new HMDA Rule (amending Regulation C) can also be found in Buckley Sandler’s HMDA Resource Center. And, as recently covered by InfoBytes, the CFPB has also made available two webinars and various "Quick Reference" guides that help explain the HMDA.
Education Secretary Rolls Back Obama Administration Federal Student Loan Servicing Policies
On April 11, Education Secretary Betsy DeVos rolled back Obama administration policies designed to reform how student loan servicers collect debt. In a memo sent to Federal Student Aid Chief Operating Officer James Runcie, DeVos formally withdrew several policy memos issued last year by former Education Secretary John B. King Jr. and former Education Undersecretary Ted Mitchell, citing the need to promptly address “shortcomings” and “inconsistenc[ies]” in the student loan servicing procurement process. DeVos further emphasized the need for change because of “a myriad of moving deadlines, changing requirements and a lack of consistent objectives” as well as a need to move forward “with precision, timeliness and transparency.” The withdrawn memos, dated June 30, 2016 and July 20, 2016 (as well as the corresponding October 17 addendum), were developed to guide the way in which the federal government contracts with outside servicers to ensure that borrowers get the service and protection they deserve. The guidance was intended to strengthen student loan servicing by increasing consistency, transparency, and accountability in the student lending marketplace (see previous InfoBytes post). By rescinding these memos, DeVos also removed the requirement that the FSA consider servicers’ past behavior when awarding contracts, including whether the company misled borrowers or engaged in abusive consumer service.
House Financial Services Committee Chairman Issues New Subpoena to CFPB
On April 4, House Financial Services Committee Chairman Jeb Hensarling issued a new subpoena to the CFPB, giving the Bureau a May 2 deadline to comply with its request for documents, which related to auto lending, payday lenders, and investigations into a company that allegedly charged higher interest rates to minorities on auto loans, as well as a national bank allegedly involved in the improper sales practice of creating deposit and credit card accounts without consumer consent. The subpoena also repeats some requests made by the Committee in previous subpoenas as a response to the Bureau’s failure to perform its legal obligations to produce the requested documents. As outlined in Schedule A’s second item of the April 4 subpoena, the Committee requests “all records relating to any instance whatsoever, from January 4, 2012 – present, in which any CFPB employee directed another federal government employee not to transmit to any Member, Committee, or Subcommittee of Congress records requested or subpoenaed by any Member, Committee, or Subcommittee of Congress.”
As previously covered in InfoBytes, over the past 17 months, GOP members of the Committee, who believe that the CFPB likely has and continues to violate the Administrative Procedure Act, have issued three investigative reports based on internal CFPB documents obtained by the Committee.
FDIC Releases April List of CRA Compliance Examinations
On April 5, the FDIC published its monthly list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list reports CRA evaluation ratings assigned to institutions in January 2017. Monthly lists of all state nonmember banks whose evaluations have been made publicly available can be accessed through the FDIC’s website.