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New York enacts commercial lending disclosure requirements
On December 23, the New York governor signed S5470, which establishes consumer-style disclosure requirements for certain commercial transactions. For open and closed-end commercial financing transactions, the legislation requires that the disclosures include, among other things, (i) the amount financed or the maximum credit line; (ii) the total cost of the financing; (iii) the annual percentage rate; (iv) payment amounts; (v) a description of all other potential fees and charges; and (vi) prepayment charges. Violations are subject to a civil penalty no greater than $2,000 per violation. Notably, the legislation exempts (i) financial institutions (defined as a chartered or licensed bank, trust company, industrial loan company, savings and loan association, or federal credit union, authorized to do business in New York); (ii) lenders regulated under the federal Farm Credit Act; (iii) commercial financing transactions secured by real property; (iv) technology service providers; (v) lenders who make no more than five applicable transactions in New York in a 12-month period; and (vi) any individual commercial financing transaction over $500,000. The legislation is effective 180 days after enactment.
As previously covered by InfoBytes, California is currently finalizing proposed regulations implementing the requirements of the commercial financing disclosures required by SB 1235 (Chapter 1011, Statutes of 2018), which was enacted in September 2018. The California Department of Financial Protection and Innovation previously signaled its intent to finalize the regulations by January 2021.
Court grants preliminary approval of CCPA class action settlement
On December 29, the U.S. District Court for the Northern District of California granted preliminary approval of a proposed settlement in a class action alleging a children’s clothing company and cloud technology service provider (collectively, “defendants”) violated, among other things, the California Consumer Privacy Act (CCPA) after suffering a data breach and potentially exposing customers’ personal information (PII) used to purchase products from the company’s website. After the company issued a notice of the security incident in January 2020, the plaintiffs filed the class action alleging the company failed to (i) “adequately protect its users’ PII”; (ii) “warn users of its inadequate information security practices”; and (iii) “effectively monitor [the company]’s website and ecommerce platform for security vulnerabilities and incidents.”
After mediation, the plaintiffs filed an unopposed motion for preliminary approval of class action settlement, which provides for a $400,000 settlement fund to cover approximately 200,000 class members who made purchases through the company’s website from September 16, 2019 to November 11, 2019. Class members have the option of claiming a cash payment of up to $500 for a Basic Award or of up to $5,000 for a Reimbursement Award, with amounts increasing or decreasing pro rata based on the number of claimants. Additionally, the company agreed to certain business practice changes, including conducting a risk assessment of its data assets and environment and enabling multi-factor authentication for all cloud services accounts. When granting preliminary approval, the court concluded that the agreement does “not improperly grant preferential treatment to any individual or segment of the Settlement Class and fall[s] within the range of possible approval as fair, reasonable, and adequate.”
New York requires clear and conspicuous consumer notice prior to auto-renewal of contracts
On November 11, the New York governor signed S01475, which requires clear and conspicuous consumer notice and consent prior to an auto-renewal of any contract of any term for any subsequent term. Specifically, the act provides that a business will be deemed to have engaged in unlawful practices if it (i) fails to present the renewal offer terms or continuous service offer terms in a clear and conspicuous manner before the subscription or purchasing agreement is fulfilled; (ii) charges a consumer’s credit or debit card, or uses a third party to charge a consumer’s account, without first obtaining a consumer’s affirmative consent to the auto-renewal of a contract; (iii) fails to provide an acknowledgement to the consumer that includes the auto-renewal terms and cancellation policy; or (iv) fails to provide a disclosure following the offer of a free gift or service that allows the consumer to cancel before paying for the goods or services. Among other things, the act also provides that consumers who accept an auto-renewal “shall be allowed to terminate the automatic renewal or continuous service exclusively online.” The act further stipulates that a “knowing violation” will be punishable by a civil penalty of not more than $500 for a single violation and not more than $1,000 for multiple violations as a result of a single act or incident. The act also outlines exempt entities, which include entities regulated by NYDFS, and “banks, bank holding companies, or the subsidiary or affiliate of either, or credit unions or other financial institutions, licensed under state or federal law.” The act will take effect 90 days after it was signed.
New York requires financial institutions to provide written notice prior to charging account inactivity fees
On November 11, the New York governor signed S4188, which requires financial institutions to provide written notice to an account holder 30 days prior to charging any fee based on account inactivity. The provision applies to financial institutions as well as mortgage brokers, mortgage bankers, or other investment entities, “whether headquartered within or outside the state.” E-mail notifications will also satisfy the written notice requirement. The act will take effect 90 days after it was signed.
California to allow banks to service licensed cannabis businesses
On September 29, the California governor approved AB 1525, which provides, among other things, that banks and accountants that provide financial services to cannabis businesses are not in violation of California law “solely by virtue of the fact that the person receiving the benefit of any of those services engages in commercial cannabis activity as a licensee.” The bill also allows licensed cannabis businesses to sign a waiver permitting state or local licensing and regulatory authorities to share “application, license, and other regulatory and financial information” with a designated financial institution “for the purpose of facilitating the provision of financial services for that licensee.”
California enacts the Debt Collection Licensing Act
On September 25, California governor signed SB 908, which includes the “Debt Collection Licensing Act” (the Act). The Act requires a person engaging in the business of debt collecting in the state of California to be licensed and provides for the regulation and oversight of debt collectors by the Department of Financial Protection and Innovation (DFPI) (the legislation refers to the DFPI as its previous name Department of Business Oversight). Debt collection licenses will be required starting January 1, 2022. Debt collectors who submit applications before January 1, 2022 will be allowed to operate while their application is pending.
The Act details the process of licensure, including application fees and background checks, and requires each licensee to (i) file reports under oath with the Commissioner; (ii) maintain a surety bond; (iii) and pay to the Commissioner its pro rata share of all costs and expenses to administer the licensing provisions. The Act requires the Commissioner to “take all actions necessary” in preparation “to fully enforce the licensing and regulatory provisions of this division, including, but not limited to, adoption of all necessary regulations” by January 1, 2022.
Moreover, in addition to the FDCPA’s general prohibition on engaging in unfair or deceptive acts or practices in the collection of consumer debts, SB 908 also prohibits California debt collectors from, among other things, (i) using profane language; (ii) placing telephone calls without disclosing the caller’s identity; (iii) communicating with debtors at a frequency that is “unreasonable,” and would “constitute harassment of the debtor under the circumstances;” and (iv) sending written or digital communications without their California license number displayed in at least 12-point sized font.
California DBO now Department of Financial Protection and Innovation
On September 29, the California governor signed AB 107, an Assembly Budget Committee bill, which changes the name of the Department of Business Oversight (DBO) to the Department of Financial Protection and Innovation (DFPI), effective immediately. As previously covered in depth by a Buckley Special Alert, the California legislature passed AB 1864, which was signed by the governor on September 25 and enacts the California Consumer Financial Protection Law (CCFPL) and establishes the DFPI name change.
The DFPI name change is now live on their website.
Certain business and employment CCPA exemptions extended to 2022
On September 29, the California governor signed AB 1281, which extends certain exemptions under the California Consumer Privacy Act (CCPA) from January 1, 2021 to January 1, 2022. As previously covered by InfoBytes, the CCPA—enacted in June 2018 (covered by a Buckley Special Alert) and amended several times—became effective January 1, and provides consumers several rights regarding their personal information that is held by a business. Specifically, the exemptions at issue in AB 1281 apply to “information collected by a business about a natural person in the course of the natural person acting as a job applicant, employee, owner, director, officer, medical staff member, or contractor, as specified.” The exemptions also apply to certain personal information used in communications or transactions between a business and a consumer if the “consumer is a natural person who is acting as an employee, owner, director, officer, or contractor of a company, partnership, sole proprietorship, nonprofit, or government agency and whose communications or transaction with the business occur solely within the context of the business conducting due diligence regarding, or providing or receiving a product or service to or from that company, partnership, sole proprietorship, nonprofit, or government agency.” However, the act will only take effect if a ballot proposition does not pass during the November statewide general election.
California enacts student loan servicing requirements
On September 25, the California governor signed AB 376, which provides new requirements for student loan servicers. Among other things, these requirements require servicers to (i) timely post, process, and credit payments within certain timeframes; (ii) apply overpayments “consistent with the best financial interest of a student loan borrower,” and apply partial payments so that late fees and negative credit reporting are minimized; (iii) diligently oversee service providers; and (iv) provide specialized training for personnel responsible for offering advice to “military borrowers, borrowers in public service, borrowers with disabilities, and older borrowers.” The bill also prohibits student loan servicers from, among other things, engaging in unfair or deceptive practices or abusive acts and practices. Additionally, the bill will allow a borrower “who suffers damages as a result of a person’s failure to comply with these provisions as well as all applicable federal laws relating to student loan servicing to bring an action for actual damages, injunctive relief, restitution, punitive damages, attorney’s fees, and other relief, including treble damages in certain circumstances.” The bill also provides for an opportunity to cure alleged violations. The bill further stipulates that, starting July 1, 2021, the Commission of Business Oversight will be authorized to compile information on student loan servicers’ business conduct and various activities in order to monitor and assess consumer risk.
Special Alert: California’s new consumer financial protection law expands UDAAP and enforcement authority
On Monday, August 31, the California Legislature passed Assembly Bill 1864, which enacts the California Consumer Financial Protection Law (CCFPL) and changes the name of the Department of Business Oversight (DBO) to the Department of Financial Protection and Innovation (DFPI).
Key takeaways
- Establishes UDAAP authority for the new DFPI, adding “abusive” to “unfair or deceptive” acts or practices prohibited by California law, and authorizing remedies similar to those provided in the Dodd-Frank Act. The DFPI also has authority to define UDAAPs in connection with the offering or provision of commercial financing (e.g., merchant cash advance, lease financing, factoring) and other financial products or services to small business recipients, nonprofits, and family farms.