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Financial Services Law Insights and Observations

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  • Gap Waiver Act Promulgated in Maine

    State Issues

    On June 12, Maine Governor Paul LePage signed into law S.P. 531, “An Act To Amend the Usage and Consumer Protections of Guaranteed Asset Protection [GAP] Waivers.” The Act applies to finance agreements for motor vehicles in which the creditor offers, for a separate charge, to “cancel or waive all or part of the amount due on a borrower’s finance agreement . . . in the event of a total physical damage loss or unrecovered theft.” The GAP waiver agreement must either be included in the auto finance agreement or attached to it as an addendum, and the waiver remains part of the finance contract when the contract is assigned, sold, or transferred. Additionally, the Act provides that the waiver may be sold in the state for a single or monthly payment, but “may not be considered a finance charge or interest” when disclosed in compliance with the Truth in Lending Act.

    A required disclosure with a GAP waiver is a “free-look” period during which the borrower can cancel the waiver agreement and receive a full refund of costs paid for the waiver as long as no waiver benefits have been provided. The waiver contract must also provide clear instructions for the borrower to follow in order to obtain waiver benefits, and the method for calculating the amount of the refund due if the contract is cancelled or terminated early.

    The law takes effect on January 1, 2018.

    State Issues State Legislation Auto Finance Installment Loans TILA

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  • Maine Amends Fair Debt Collection Practices Act to Enact Debt Collection Requirements for Debt Buyers

    State Issues

    On June 16, Maine Governor Paul LePage signed into law amendments (H.P. 836) to the state’s Fair Debt Collection Practices Act (Maine FDCPA) to promote the fiscally responsible collection of purchased debts. Changes affect the definitions of charge-off, debt buyer and resolved debt, as well as licensing and documentation requirements, transferring debt ownership, collection actions, and civil penalties.

    The law now considers a “debt buyer” to be a debt collector, and defines a debt buyer as a person “regularly engaged in the business of purchasing charged-off consumer debt for collection purposes, whether the person collects the debt or hires a [third] party, which many include an attorney-at-law, in order to collect the debt.” Notably, the definition excludes supervised financial organizations or a person that “acquires charged-off consumer debt incidental to the purchase of a portfolio predominantly consisting of consumer debt that has not been charged off.” Debt buyers must comply with existing licensing requirements and criminal background checks under the provisions of Maine FDCPA Section 11031.

    The law will apply to a debt buyer with respect to debt sold to the debt buyer on or after January 1, 2018. Furthermore, it will not “affect the validity of any collection actions taken, civil actions or arbitration actions commenced or judgments entered into prior to January 1, 2018.”

    State Issues State Legislation Debt Collection Debt Buyer FDCPA

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  • Texas Governor Passes Legislation Related to Vehicle Installment Contracts, Documentary Fees, and Deferred Presentment Transactions for Military Borrowers

    State Issues

    On June 9, Texas Governor Greg Abbott signed legislation (H.B. 2339) amending the state’s Finance Code provisions governing trade-in credit agreements related to motor vehicle retail installment contracts. The law now authorizes a seller—upon execution of a contract—to offer to sell to a buyer a “trade-in credit agreement,” which is “a contractual arrangement under which a retail seller agrees to provide a specified amount as a motor vehicle trade-in credit for the diminished value of the motor vehicle that is the subject of the retail installment contract in connection with which the trade-in credit agreement is offered if the motor vehicle is damaged but not rendered a total loss as a result of a collision accident, with the credit to be applied toward the purchase or lease of a different motor vehicle from the retail seller or an affiliate of the retail seller.” Specifically, a trade-in credit agreement is separate from a retail installment contract, not a term of the retail installment contract, and not insurance. The law further outlines changes related to the amount charged for a trade-in credit agreement as well as terms and conditions of the retail installment contract. The law takes effect September 1, 2017.

    On June 15, the governor signed legislation (H.B. 2949) relating to the maximum amount a retail seller of motor vehicles can charge for a documentary fee. Under the changed provisions, a seller is now required to provide written notice to the finance commission of the amount it intends to charge unless the documentary fee is considered reasonable, which is established as an amount “less than or equal to the amount of the documentary fee presumed reasonable . . . by rule of the finance commission.” In determining whether a fee is reasonable, the commissioner considers the resources a retail seller may need to employ to perform its duties when handling and processing documents related to the sale and financing of the vehicle. The law takes effect September 1, 2017.

    Separately on June 15, the governor signed legislation (H.B 2008) amending the Texas Finance Code to require a lender that enters into a deferred presentment transaction with a military servicemember or a dependent of a servicemember to comply with the Military Lending Act (MLA) (10 U.S.C. § 987) and its implementing regulation. The MLA prohibits creditors from extending consumer credit if the “creditor rolls over, renews, repays, refinances, or consolidates any consumer credit extended to the covered borrower by the same creditor with the proceeds of other consumer credit extended by that creditor to the same covered borrower.” Creditors engaged in deferred presentment transactions or similar payday loan transactions are subject to these limitations “provided however, that the term does not include a person that is chartered or licensed under Federal or State law as a bank, savings association, or credit union.” The law takes effect September 1, 2017.

    State Issues State Legislation Military Lending Act Servicemembers Auto Finance

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  • Nevada Passes Bill Revising Motor Vehicle Technology Device Provisions, Assigns Responsibility to Creditors and Lessors

    State Issues

    On June 12, Nevada Governor Brian Sandoval signed into law SB 350, which amends deceptive trade practices provisions to prohibit certain creditors and lessors of motor vehicles from installing or requiring installation of certain GPS and starter interrupt devices without written notice. Specifically, the bill requires creditors or long-term lessors to either provide advance written notice to, or obtain written agreement from, the consumer purchasing or leasing the vehicle before installing or requiring the installation of GPS devices. Additionally, the creditor/lessor must receive a written agreement from the consumer consenting to installation and use of a starter interrupt device. The bill outlines requirements and restrictions on the use of these technology devices, and provides that “such technology devices generally are the responsibility of a creditor or long-term lessor or, if applicable, any successor in interest or another secured party . . . .” It further specifies that “such responsibility includes paying for certain costs associated with, and any damage to a motor vehicle that is caused by, the use of such technology devices.” With the passage of SB 350, any violation of the aforementioned is a “deceptive trade practice.” The law takes effect July 1, 2017.

    State Issues Auto Finance State Legislation

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  • New Hampshire Legislation Adds Money Transmitter Licensing Exemptions

    State Issues

    On June 7, New Hampshire Governor Chris Sununu signed into law H.B. 436, which exempts persons using virtual currency from registering as money transmitters. The law states that “persons who engage in the business of selling or issuing payment instruments or stored value solely in the form of convertible virtual currency or who receive convertible virtual currency for transmission to another location” are now exempt but are subject to the provisions of the state’s statute regulating business practices for consumer protection. The law takes effect August 1.

    Fintech Virtual Currency State Legislation Money Service / Money Transmitters

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  • Maine Amends Consumer Credit Code to Regulate Mortgage Loan Servicers

    State Issues

    On May 30, Maine Governor Paul LePage signed into law S.P. 444, which amends the state’s Consumer Credit Code to improve the mortgage foreclosure process by regulating mortgage loan servicers. Under the Consumer Credit Code, “creditors” must be licensed and must comply with the provisions of the Consumer Credit Code. The amendment revises the definition of “creditor” to now include a “mortgage loan servicer,” which means a person or organization that undertakes direct collection of payments from or enforcement of rights against debtors arising from a supervised loan secured by a dwelling. The law, according to state rules, takes effect 90 days after adjournment of the legislature.

    State Issues Mortgage Servicing State Legislation Foreclosure

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  • Connecticut Law Expands Credit Card Fraud Statutes, Addresses Penalties for Rent Collections on Foreclosed Property

    State Issues

    On June 6, Connecticut Governor Dannel Malloy signed into law Public Act No. 17-26, which expands the statutes on credit card fraud to cover crimes involving debit cards—including payroll and ATM cards—and outlines larceny penalties for collecting rent on foreclosed property. Paper and electronic checks or drafts are excluded from the definition of debit card under revised measure. Additionally, the law specifies changes pertaining to how “notice of a card’s revocation must be sent for purposes of these crimes and expands certain credit card crimes to cover falsely loading payment cards (credit or debit cards) into digital wallets.” Regarding larceny penalties, the law provides that a “previous mortgagor of real property against whom a final judgment of foreclosure has been entered” cannot continue to collect rent after the final judgment if there is no lawful right to do so. Penalties vary from a class C misdemeanor to a class B felony depending on the amount involved. The law takes effect October 1.

    State Issues Credit Cards Debit Cards Prepaid Cards State Legislation Financial Crimes Mortgages Digital Commerce Fraud

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  • Texas Bans Credit Card Surcharges

    State Issues

    On May 27, Texas passed legislation that bans surcharges on credit card transactions. Existing Texas law prohibits businesses from increasing the price charged for goods or services for buyers who pay with a debit card or stored value card. With the passage of S.B. 560 , the prohibition on such surcharges will now extend to credit card transactions as well. The law takes effect September 1, 2017. Any person who violates the law can incur a civil penalty of up to $500 for each incident.

    State Issues State Legislation Credit Cards

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  • Vermont Governor Enacts Law Including Blockchain Application

    Fintech

    On June 8, Vermont Governor Phil Scott signed into law legislation (S. 135), which would, among other things, allow for broader business and legal application of blockchain technology to promote economic development. Additionally, S. 135 requires the Center for Legal Innovation at Vermont Law School, the Commissioner of Financial Regulation, the Secretary of Commerce and Community Development, and the Vermont Attorney General to prepare a joint report for the General Assembly on “findings and recommendations,” as well as policy proposals and “measurable goals and outcomes” concerning “potential opportunities and risks presented by developments in financial technology.” The new law follows the passage of House Bill 868 last June, which defined blockchain as “a mathematically secured, chronological, and decentralized consensus ledger or database,” and formally recognized blockchain-notarized documents as having legal bearing in a court of law.

    As previously reported in InfoBytes, Arizona recently enacted a similar law (AZ H.B. 2417) recognizing blockchain signatures and smart contracts under state law.

    Fintech Privacy/Cyber Risk & Data Security State Attorney General State Legislation Blockchain Distributed Ledger

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  • Alabama Enacts Law Regarding Refund Obligations

    State Issues

    On May 26, Governor Kay Ivey signed into law HB 420, which authorizes and regulates the transactions of guaranteed asset protection (GAP) waivers related to vehicle loans. Importantly, the law requires that if the GAP waiver is cancelled due to early termination of the finance agreement, “the creditor shall provide, or cause the administrator or retail seller to provide, within 60 days of termination, any refund due to a borrower without requiring the borrower to request cancellation of the waiver.” Furthermore, cancellation refunds can be applied toward the amount owed under the finance agreement unless it has proven to be paid in full. The law goes into effect January 1, 2018.

    State Issues State Legislation Auto Finance

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