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Alabama State Bank Dept. issues Covid-19 lending/borrowing guidance
On March 19, the Alabama State Bank Department (ASBD) issued guidance on lending and borrowing in light of Covid-19. ASBD notes that it has historically required Other Real Estate (ORE) properties that are held for five years to be written down to $1 if the bank has not received written approval of the Superintendent for an extended holding period. Effective immediately, ASBD’s guidance provides that where write-downs have been required for properties that are beyond the five-year limit, banks may discontinue the required write-downs and hold the properties at current book value.
NCUA provides urgent needs grants to credit unions during Covid-19 emergency
On March 23, the National Credit Union Administration (NCUA) announced that “[f]ederally insured, low-income designated credit unions” that have been adversely impacted by costs related to Covid-19 may apply for urgent needs grants. The NCUA can provide grants for such things as (i) “[h]ardware, software, or other equipment to help them provide financial products and services from remote locations”; (ii) “[c]onsulting services to develop programs…to assist those affected by COVID-19”; and (iii) “marketing materials to assure members their insured deposits are safe.” Applications for the grants may be found here.
FHA Issues FAQs to address Covid-19; Extends annual recertification deadline
On March 18, the FHA issued a new set of Covid-19 FAQs. Importantly, FHA extended the due date for annual recertification to April 30, 2020 for lenders with a December fiscal year end. The new FAQs also provide that lenders will not be penalized for overdue binder requests caused by temporary office closures or staff reductions (although lenders are encouraged to make every effort to submit case binders as quickly as possible), and clarify questions regarding foreclosure moratoriums.
AARMR urges waiving of certain fees and charges
On March 17, the American Association of Residential Mortgage Regulators (AARMR) issued a statement encouraging mortgage lenders and servicers to take steps to “mitigate the impact to consumers of actions taken in response to Covid-19.” For lenders, the AARMR suggests steps such as waiving rate lock extension fees if an application is delayed for reasons beyond an applicant’s control, or refraining from closing an application due to incompleteness if an applicant is having difficulty gathering required documents. For servicers, the AARMR suggested waiving certain late charges (if permitted), offering forbearance plans or other deferment options, and generally ensuring that all staff are aware of available options and are proactive in assisting borrowers with potential delinquent payments. The AARMR also encourages member agencies to consider the impact of Covid-19 in their dealings with brokers, lenders, servicers, and MLOs.
New York blocks use of social networks in credit decisions
On November 25, the Governor of New York signed S2302, a measure which prohibits entities that are “licensed lenders” in New York, as well as consumer reporting agencies (CRAs), from including a consumer’s social network information in credit decisions. S2302 amends New York’s general business law and the banking law to prohibit licensed lenders and CRAs from considering “the credit worthiness, credit standing, or credit capacity of members of the consumer’s social network” or “the average credit worthiness, credit standing, or credit capacity of members of the consumer’s social network or any group score that is not the [consumer’s] own credit” information. Specifically, the amendment prohibits licensed lenders and CRAs from collecting, evaluating, reporting, or maintaining the information in a file. Additionally, the consumer’s internet viewing history also may not be factored into the licensed lender’s or agency’s “credit scoring formulas.”
NYDFS announces multistate investigation of payroll advance industry
On August 6, NYDFS announced it is leading a multistate investigation into the payroll advance industry based on allegations of unlawful online lending. According to NYDFS, the investigation will focus on whether companies are violating state banking laws, including usury limits, licensing laws, and other applicable laws regulating payday lending. NYDFS alleges that some companies appear to collect unlawful interest rates disguised as “tips” as well as monthly membership and/or excessive additional fees, and may collect improper overdraft charges.
In addition to New York, other states in the investigation include: Connecticut, Illinois, Maryland, New Jersey, North Caroline, North Dakota, Oklahoma, Puerto Rico, South Carolina, South Dakota, and Texas.
NY extends law allowing licensed lenders to charge annual fees
On July 3, the New York governor signed SB 6100, which extends for an additional two years the existing provision of the banking law allowing licensed lenders to charge annual fees on open-end personal loans. Effective immediately, the law will now remain in full force and effect until June 30, 2021.
CFPB settles with defunct schools’ student loan management company
On June 14, the CFPB announced a settlement with a company that manages student loans for a defunct for-profit educational institution resolving allegations it provided substantial assistance to the institution in engaging in unfair acts and practices in violation of the Consumer Financial Protection Act (CFPA). As previously reported by InfoBytes, the Bureau filed suit against the now-defunct for-profit institution in February 2014. The Bureau’s complaint against the institution alleged that the institution offered first-year students no-interest short-term loans to cover the difference between the costs of attendance and federal loans obtained by students. The complaint asserts that the institution then forced borrowers into “high-interest, high-fee” private student loans without providing borrowers an adequate opportunity to understand their loan obligations, when their short-term loans became due. In the complaint in the current matter, filed the same day as the proposed stipulated judgment, the Bureau alleges that the management company: (i) was substantially involved in the creation and operation of the loan program, including raising money and overseeing the origination and servicing of the loans; and (ii) knew, or was reckless in not knowing, the risks associated with the loan program. The stipulated judgment requires the company to (i) cease enforcement and collection efforts on all outstanding loans associated with the program; (ii) discharge all outstanding loans associated with the program; and (iii) direct credit reporting agencies to delete consumers’ trade lines associated with the loan program. The company must also provide notice of these actions to affected consumers. The proposed judgment does not include a monetary penalty or require refunds to consumers.
11th Circuit: City of Miami sufficiently alleged Fair Housing Act violations
On May 3, the U.S. Court of Appeals for the 11th Circuit held that the City of Miami plausibly alleged that two national banks’ lending practices violated the Fair Housing Act (FHA) and led to defaults, foreclosures, and vacancies, and eventually reduced property values and corresponding property tax revenues. The court did so by finding “some direct relation” between the City’s tax revenue injuries and the Bank’s alleged violations of the FHA. The case returned to the 11th Circuit after having been appealed to and resolved in part in the U.S. Supreme Court in 2017, where the Court held that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices (previously covered by a Buckley Special Alert). According to the appellate court opinion, the Court “declined to ‘draw the precise boundaries of proximate cause under the FHA and to determine on which side of the line the City’s financial injuries fall,’” leaving to the lower courts the issue of how the principles of proximate cause function when applied to the FHA and the facts of the complaints.
The appellate court concluded that the district court erred in dismissing the City’s claims against the banks in their entirety, with the 11th Circuit finding “a logical and direct bond between discriminatory lending as a pattern and practice applied to neighborhoods throughout the City and the reduction in property values.” However, the appellate court concluded that the City’s allegations fell short of establishing a direct relationship between the alleged misconduct and the City’s purported increase in its municipal services expenditures, noting that the U.S. Supreme Court “has told us that foreseeability alone is not enough.” The appellate court emphasized that at the motion to dismiss stage it was only addressing the plausibility that the alleged conduct violated the FHA, and remanded the case back to the district court.
3rd Circuit: District court erred in voiding all cash advance agreements in NFL concussion settlement litigation
On April 26, the U.S. Court of Appeals for the 3rd Circuit, in a consolidated class action, concluded that a district court went “too far” in voiding all of the cash advance arrangements between NFL concussion class members and third party lenders in their entirety. According to the opinion, in December 2017, the district court “issued an order purporting to void in their entirety all assignment agreements” where class members assigned a portion of their settlements from the 2015 NFL concussion injury litigation, concluding that it was “necessary to protect vulnerable class members from predatory funding companies.”
On appeal, the 3rd Circuit addressed the merits in three of the four timely appeals, noting that the fundamental question was whether the district court had the authority to void the agreements. The appellate court held that the district court retained the authority to enforce and administer the settlement because there was an anti-assignment language in the settlement agreement. The appellate court upheld on the district court’s interpretation of the anti-assignment provision, holding that “any true assignments contained within the cash advance agreements—that is, contractual provisions that allowed the lender to step into the shoes of the player and seek funds directly from the settlement fund were void.” However, the appellate court concluded that the district court “went beyond its authority” by purportedly voiding the agreements in their entirety, because there are portions of some of the cash advance agreements that may still be enforceable after the true assignments are voided, such as ones structured as a non-assignment loan agreement. Since the district court’s authority “does not extend to how class members choose to use their settlement proceeds after they are disbursed,” the appellate court reversed in part the December 2017 order, leaving certain cash advance agreements enforceable to the extent rights are retained after the true assignments are voided.