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  • CFPB settles UDAAP allegations with Texas payday lender

    Federal Issues

    On February 5, the CFPB announced a settlement with a Texas-based payday lender and six subsidiaries (defendants) for allegedly assisting in the collection of online installment loans and online lines of credit that consumers were not legally obligated to pay based on certain states’ usury laws or licensing requirements. As previously covered by InfoBytes, the Bureau filed a complaint in 2017—amended in 2018—against the defendants for allegedly violating the CFPA’s prohibitions on unfair, deceptive, and abusive acts and practices by, among other things, making deceptive demands and originating debit entries from consumers’ bank accounts for loans that the defendants knew were either partially or completely void because the loans were void under state licensing or usury laws. The defendants—who operated in conjunction with three tribal lenders engaged in the business of extending and collecting the online installment loans and lines of credit—also allegedly provided material services and substantial assistance to two debt collection companies that were also involved in the collection of these loans.

    Under the stipulated final consent order, the defendants are prohibited from (i) extending, servicing, or collecting on loans made to consumers in any of the identified 17 states if the loans violate state usury limits or licensing requirements; and (ii) assisting others engaged in this type of conduct. Additionally, the settlement imposes a $1 civil money penalty against each of the seven defendants. The Bureau’s press release notes that the order “is a component of the global resolution of the [defendants’] bankruptcy proceeding in the Bankruptcy Court for the Northern District of Texas, which includes settlements with the Pennsylvania Attorney General’s Office and private litigants in a nationwide consumer class action.” The press release also states that “[c]onsumer redress will be disbursed from a fund created as part of the global resolution, which is anticipated to have over $39 million for distribution to consumers and may increase over time as a result of ongoing, related litigation and settlements.”

    Federal Issues CFPB Consumer Finance Debt Collection Installment Loans UDAAP CFPA Courts Settlement Consent Order Unfair Deceptive Online Lending Payday Lending Civil Money Penalties Consumer Redress

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  • California caps rate on installment loans

    State Issues

    On October 10, the California governor signed AB 539, known as the “Fair Access to Credit Act,” which amends the California Financing Law (CFL) to limit the rate of interest on certain installment loans. Specifically, for installment loans with a principal amount between $2,500 and $10,000, lenders are prohibited from charging an annual simple interest rate exceeding 36 percent plus the federal funds rate, excluding an administrative fee (not to exceed $50). Moreover, for loans between $2,500 and $10,000, the bill establishes a minimum 12-month loan term. Among other things, the bill also (i) requires lenders to report each borrower’s payment performance of these installment loans to at least one national credit reporting agency; (ii) requires lenders to offer an approved credit education program or seminar approved by the Commissioner of Business Oversight before disbursing the proceeds to the borrower; and (iii) prohibits lenders from charging or receiving any penalty for prepayment for loans made pursuant to the CFL that are not secured by real property. The bill is effective January 1, 2020.

    State Issues State Legislation Usury Interest Rate Installment Loans

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  • CFPB and South Carolina take action against loan broker for veteran pension loans

    Federal Issues

    On October 1, the CFPB and the South Carolina Department of Consumer Affairs filed an action in the U.S. District Court for the District of South Carolina against two companies and their owner, alleging that the defendants violated the Consumer Financial Protection Act (CFPA) and the South Carolina Consumer Protection Code (SCCPC) by offering high-interest loans to veterans and other consumers in exchange for the assignment of some of the consumers’ monthly pension or disability payments. The complaint alleges that the majority of the credit offers are brokered for veterans with disability pensions or retirement pensions. The defendants allegedly did not disclose to consumers the interest rates associated with the products, marketing the contracts as sale of payments and not credit offers. The defendants also allegedly did not disclose that the contracts were void under federal and state law, which prohibit the assignment of certain benefits. The Bureau and South Carolina are seeking injunctive relief, restitution, damages, disgorgement, and civil money penalties.

    The Bureau’s announcement notes that this is the third action in 2019 related to the marketing or administration of high-interest credit to veterans. As previously covered by InfoBytes, in January 2019, the Bureau settled with an online loan broker resolving allegations that the broker violated the CFPA by operating a website that connected veterans with companies offering high-interest loans in exchange for the assignment of some or all of their military pension payments. Additionally, in August 2019, the Bureau and the Arkansas attorney general announced a proposed settlement with three loan brokerage companies, along with their owner and operator, for allegedly misrepresenting high-interest credit offers to veterans and other consumers as purchases of future pension or disability payments (covered by Infobytes here). 

    Federal Issues CFPB CFPA State Issues State Regulators Installment Loans Military Lending

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  • Illinois updates Consumer Installment Loan Act and Payday Loan Reform Act

    State Issues

    On August 23, the Illinois governor signed SB 1758, which amends the state’s Consumer Installment Loan Act and the Payday Loan Reform Act. Generally, payday loans must be repayable in substantially equal and consecutive installments. The amendment clarifies that a “‘substantially equal installment’ includes a last regularly scheduled payment that may be less than, but not more than 5% larger than, the previous scheduled payment according to a disclosed payment schedule agreed to by the parties.” The amendments take effect immediately.

    State Issues State Legislation Installment Loans Payday Lending

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  • CFPB and Arkansas AG settle with pension-advance brokers

    Federal Issues

    On August 15, the CFPB and the Arkansas attorney general announced a proposed settlement with three loan brokerage companies, along with their owner and operator (collectively, “defendants”) for allegedly misrepresenting the contracts offered to veterans and other consumers. According to the complaint, from 2011 through 2016, the defendants offered high-interest credit to consumers, deceptively marketed as purchases of future pension or disability payments. The contracts allegedly required veterans to instruct that their pension direct deposits or monthly allotments be routed to the bank account controlled by the defendants or pay the contracted amounts from other sources, including purchasing life-insurance policies, to ensure the contract amount would be paid. The defendants allegedly did not disclose to consumers the interest rates associated with the products, marketing the contracts as sale of payments and not credit offers. The defendants also allegedly did not disclose that the contracts were void under federal and state law, which prohibit the assignment of certain benefits.

    Under the proposed settlement, the defendants are: (i) prohibited from brokering or participating in agreements that sell future pension rights; (ii) required to pay a civil money penalty of $1 to the Bureau; and (iii) required to pay $75,000 to the Arkansas AG’s Consumer Education and Enforcement Fund. Additionally, the settlement imposes a judgment of $2.7 million in redress, which is suspended upon the owner paying $200,000 in redress and making the payments to the Bureau and the Arkansas AG.

    Federal Issues CFPB Settlement State Issues State Attorney General Installment Loans

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  • New Mexico amends provisions related to installment and small dollar loans

    State Issues

    On April 3, the New Mexico governor signed HB 150, which amends the New Mexico Bank Installment Loan Act of 1959 and the New Mexico Small Loan Act of 1955 to, among other things, change provisions relating to financial institutions and (i) clarify that unfair or deceptive trade practices, or unconscionable trade practices, are considered violations of the Unfair Practices Act; (ii) expand annual lender reporting requirements, including identifying secured and unsecured loan products, fees and interests paid by the borrowers, loan terms, and default rates; (iii) clarify allowable loan insurance, including provisions related to licensing requirements for lenders; and (iv) expand state and federal disclosure requirements. The amendments also limit interest and other charges (permitted finance charges cannot exceed the lesser of $200 or 10 percent of the principal with outlined exceptions); grant rights of rescission within specified time frames to allow borrowers to return the full amount of funds advanced by the lender without being charged fees; and provide for penalties for lenders who willfully violate any of the provisions. Specifically, the act applies to installment loans covered by the Installment Loan Act and the Small Loan Act, and does not apply to federally insured depository institutions. The act takes effect January 1, 2020, and is applicable to loans subject to the aforementioned acts that are executed on or after the effective date.

    State Issues State Legislation Consumer Lending UDAP Installment Loans Small Dollar Lending

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  • OCC praises CFPB’s payday rule proposal

    Federal Issues

    On February 11, the OCC released a statement from Comptroller of the Currency Joseph Otting supporting the CFPB’s proposed rule rescinding certain requirements relating to underwriting standards for short-term small-dollar loans. (Covered by InfoBytes here.) Calling the proposal “important and courageous,” Otting praised the Bureau, noting that it was “[t]he shrinking supply and steady demand” that “drove up prices and promoted much less favorable terms.” He continued to state that a framework of rules that allows responsible lenders to compete in the market will make the market “work better for everyone.”

    As previously covered by InfoBytes, in May 2018, the OCC released a Bulletin encouraging banks to meet the credit needs of consumers by offering short-term, small-dollar installment loans subject to the OCC’s core lending principles.

    Federal Issues Consumer Finance CFPB OCC Installment Loans Payday Rule Underwriting

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  • FDIC seeks comments on small-dollar loans

    Federal Issues

    On November 14, the FDIC issued a request for information (RFI) seeking public comment on ways it can encourage FDIC-supervised financial institutions to offer “responsible, prudently underwritten small-dollar credit products that are economically viable and address the credit needs of bank customers.” In the RFI’s release, FDIC Chairman Jelena McWilliams pointed to studies showing that “[c]onsumers benefit when small-dollar credit products are available from banks” and requested “the public to use the RFI process to tell [the FDIC] how to ensure that consumers can obtain small dollar credit from banking institutions in a responsible manner.” The RFI seeks information related to the “full spectrum of issues” related to banks offering small-dollar credit, including regulatory and non-regulatory obstacles for banks, as well as actions the FDIC could take to assist banks in serving the small-dollar market. In addition to general feedback, the RFI includes a list of suggested topics and questions for commenters to address. Comments will be due 60 days after publication in the Federal Register.

    Recently, the OCC and the CFPB have also made efforts to encourage banks to meet the small-dollar credit needs of consumers. In May, the OCC issued Bulletin 2018-14 encouraging banks to offer responsible short-term, small-dollar installment loans with typical maturities between two and 12 months (covered by InfoBytes here). In addition to applauding the OCC’s Bulletin, the CFPB announced it expects to publish proposed rules reconsidering the ability-to-repay provisions of the rule covering Payday, Vehicle Title, and Certain High-Cost Installment Loans  in January 2019 (covered by InfoBytes here).

    Federal Issues FDIC Small Dollar Lending RFI OCC CFPB Installment Loans Payday Rule Federal Register

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  • CFPB will propose changes to ability-to-repay provisions in Payday Rule in January 2019

    Agency Rule-Making & Guidance

    On October 26, the CFPB announced it expects to publish proposed rules reconsidering the ability-to-repay provisions of the rule covering Payday, Vehicle Title, and Certain High-Cost Installment Loans (the Rule) in January 2019. The Bureau does not intend to reconsider the payment provisions of the Rule, noting that the ability-to-repay provisions “have much greater consequences for both consumers and industry than the payment provisions.” Under the current Rule, it is an unfair and abusive practice for a lender to make a covered short-term loan or a covered longer-term balloon payment loan without reasonably determining that the consumer has the ability to repay the loan (see the Buckley Sandler Special Alert for more detailed coverage on the Rule). The Bureau also intends to address the compliance date for the Rule, which is currently set at August 19, 2019.

    Agency Rule-Making & Guidance CFPB Ability To Repay Payday Rule Installment Loans

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  • Georgia Supreme Court holds legal settlement advances are not loans under state laws

    Courts

    On October 22, the Georgia Supreme Court held that legal settlement cash advances are not “loans” under the state’s Payday Lending Act (PLA) and the Industrial Loan Act (ILA) when the obligation to repay is contingent upon the success of the underlying lawsuit. The decision results from a class action lawsuit bought by clients of a legal funding company. After being involved in automobile accidents, appellants signed financing agreements with a legal funding company, which advanced them funds while their personal injury lawsuit was pending. Per the terms of their financing agreements, appellants were required to repay the funds only if their personal injury lawsuits were successful. They were successful and the settlement company soon sought to recover funds pursuant to the terms of the agreement. The appellants objected and brought suit, alleging, among other things, that the financing agreements they executed violated the state’s PLA and ILA because they were usurious loans and a product of unlicensed activity. The state trial court concluded that the PLA applied to the agreements but that the ILA did not. The state appeals court concluded that neither statute applied, determining that because the repayment obligation was contingent on the success of the lawsuit, it was not a “loan” under either the PLA or the ILA. The state supreme court agreed, holding that “an agreement that involves . . . a contingent and limited obligation of repayment is not a ‘contract requiring repayment,’” as required by the ILA’s definition of “loan.” Similarly, the financing arrangement did not constitute an agreement pursuant to which “funds are advanced to be repaid,” which would make it a loan under the PLA. Appellants also argued that the contingent repayment obligation in the financing agreement was illusory, contending that the legal funding company agrees to such an arrangement only when the risk the lawsuit will fail is “close to null.” The court rejected this claim, however, noting that nothing in the pleadings suggested that the agreements were shams.

    Courts State Issues Installment Loans Consumer Lending Payday Lending Class Action Usury

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