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Financial Services Law Insights and Observations

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  • Indiana amends delinquency charge provisions for consumer credit sales and consumer loans

    State Issues

    On May 6, the Indiana governor signed HB 1136, which amends the state’s Uniform Consumer Credit Code (UCCC) to, among other things, revise provisions related to authorized delinquency charges on consumer credit sales and consumer loans. Specifically, the amendments authorize a creditor to collect a delinquency charge of not more than (i) $5 for installments not paid in full within 10 days after the scheduled due date if installments are due every 14 days or less; (ii) $25 for installments not paid in full within 10 days after the scheduled due date if installments are due every 15 days or more; or (iii) $25 on single installments due at least 30 days after the consumer loan is made if the installment is not paid within 10 days after its scheduled due date. Furthermore, creditors are prohibited from collecting—whether directly or indirectly—a delinquency charge on any payment that (i) is paid within 10 days following its scheduled due date; and (ii) “is otherwise a full payment of the payment due for the applicable installment period. . .if the only delinquency with respect to a consumer credit sale, refinancing, or consolidation is attributable to a delinquency charge assessed on an earlier installment.” In addition, HB 1136 amends the maximum transaction fee for revolving loan accounts to the greater of 2 percent of the transaction amount or $10. The amendments take effect July 1.

    State Issues State Legislation Consumer Lending Consumer Finance Fees

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  • States enact data breach notification requirements

    State Issues

    On May 10, the New Jersey governor signed S 52, which amends the state’s data breach notification provisions. The amendments expand the definition of “personal information” to include “user name, email address, or any other account holder identifying information, in combination with any password or security question and answer that would permit access to an online account.” The amendment further permits breached entities to provide individuals, whose account access credentials have been compromised, with the opportunity to promptly change online account information, so long as the notification is not sent to an email account subject to the security breach. The amendments take effect on September 1.

    On May 7, the Washington governor signed HB 1071, which amends the state’s data breach notification law to, among other things, (i) narrow the window for post-breach notification to affected individuals and to the state Attorney General, if applicable, from 45 days to 30 days after discovery; (ii) require notifications to contain the date of the breach and the date of the discovery of the breach, if known; (iii) permit electronic notification to affected individuals, which must instruct them to promptly change passwords and security questions or answers, as applicable; and (iv) significantly expand the items included in the notice to the Attorney General, including a summary of steps taken to contain the breach. In addition, HB 1071 expands the definition of “personal information” to include, among other things, the full birth date; a private key unique to an individual that is used to authenticate or sign electronic records; student, military, or passport ID numbers; health insurance identification numbers; biometric data or medical history; and user names and email addresses combined with passwords or security questions. The amendments take effect March 1, 2020.

    State Issues State Legislation Privacy/Cyber Risk & Data Security Data Breach State Attorney General

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  • Indiana amends towing notification laws

    State Issues

    On May 6, the Indiana governor signed HB 1183, which amends the state statute concerning the release of an abandoned motor vehicle that has been towed to a storage yard or towing facility. Among other things, the bill revises notification requirements for towed vehicles, providing that a public agency or towing service must conduct a search of the National Motor Vehicle Title Information System or an equivalent database to attempt to obtain the name of the person who owns or holds a lien on the vehicle and contact that person within three days regarding charges and the potential to auction the vehicle if not claimed. The bill also provides inspection rights for owners and lienholders of vehicles and allows for a towing service or storage yard to charge an inspection fee for inspections or retrievals from the vehicle. The bill is effective July 1.

    State Issues State Legislation Auto Finance Debt Collection Repossession

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  • New York legislature introduces bills to protect small businesses, regulate merchant cash advance transactions

    State Issues

    On May 1, S5470 was introduced in the New York State Senate and is now sitting with the Committee on Banks, which would establish consumer-style disclosure requirements for certain commercial transactions. Similar to the legislation enacted in California last September, previously covered in InfoBytes here, the bill requires financing entities subject to the law to disclose in each commercial financing transaction “the total cost of the financing, expressed as a dollar cost, including any and all fees, expenses and charges that are to be paid by the recipient and that cannot be avoided by the recipient, including any interest expense.” For open and closed-end commercial financing transactions, the bill requires that the disclosures must 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. The bill sets out analogous, but separate, disclosure requirements for accounts receivable purchase transactions, such as merchant cash advance and factoring transactions.

    Importantly, the bill does not apply to (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) a technology service provider; and (v) a lender who makes no more than one applicable transaction in New York in a 12-month period or any person that makes commercial financing transactions in New York that are incidental to the lender’s business in a 12-month period.

    Additionally, the New York legislature is also considering a number of other bills that would affect commercial financing transactions:

    • A03637, would amend the state’s banking law to deem asset-based lending transactions (defined as, “a transaction in which advances are made which are contingent on the recipient forwarding payments received from one or more third parties for goods such recipient has supplied or services such recipient has rendered to that third party or parties.”) to be loans for all purposes. On its face, this legislation would subject typical merchant cash advance and factoring transactions, which New York courts have in many recent court cases deemed to be non-loan transactions, to lending law restrictions, which would include potential licensure requirements and usury restrictions.
    • A03636, would amend the state’s business law to prohibit the inclusion of a confession of judgment (COJ) in a contract or agreement for a financial product or service provided by an entity regulated by the New York Department of Financial Services for the purpose of consumer or investor protection, which is specifically defined by the bill as: (i) any product or service for which registration or licensing is required or for which the offeror or provider is required to be registered or licensed by state law; (ii) any product or service as to which provisions for consumer or investor protection are specifically set forth for such product or service by state statute or regulation; and (iii) securities, commodities and real property subject to the provisions of article 23A of the general business law. COJs are contractual clauses in which a debtor waives in advance his or her right to be notified of a court hearing, or to present his or her side of the case, which are prohibited under federal law for consumer contracts by the FTC Credit Practices Rule (16 C.F.R. pt. 444). In conjunction with potential licensure required under AO3637 above, the passage of both pieces of legislation in New York could result in the prohibition of COJ clauses in merchant cash advance agreements, a common feature of such agreements and generally permitted under New York law.
    • A03638, would extend the majority of the state’s consumer protections with respect to loans made to small businesses (defined by the bill as, a “small business shall be deemed to be one which is resident in this state, independently owned and operated, not dominant in its field and employs one hundred or less persons.”). Specifically, the bill would amend the state’s general obligations law to extend all rights and privileges granted under the title to small businesses and would also amend Section 173 and Section 380-e of the state’s banking law to extend all the rights and privileges granted by the section to small businesses.

    Relatedly, the FTC recently held a forum on small business marketplace lending practices, see detailed InfoBytes coverage on the forum here.

    State Issues Small Business Lending State Legislation Consumer Finance Disclosures Commercial Finance APR

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  • Maryland amends security breach notification requirements

    State Issues

    On April 30, the Maryland governor signed HB 1154 to amend current law related to security breach notification requirements. Among other provisions, HB 1154 (i) requires businesses that own, license, or maintain computerized data that includes a resident’s personal information to conduct a reasonable, prompt investigation in the event of a security breach to determine whether the personal information has been, or is at risk of, being misused due to the breach; (ii) requires business to provide notice to the affected individuals; (iii) stipulates that businesses may not charge fees when providing necessary information to an owner or licensee who is required to provide notice to affected individuals; and (iv) provides restrictions concerning the use of the computerized data relative to the security breach. The amendments take effect October 1.

    State Issues State Legislation Privacy/Cyber Risk & Data Security Data Breach

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  • Oklahoma prohibits credit, debit card surcharges

    State Issues

    On April 30, the Oklahoma governor signed HB 1425, which, among other things, bans surcharges on credit or debit card transactions. The ban prohibits sellers from increasing the price of any sales transaction for buyers who pay with a credit or debit card instead of a check, cash, or similar means. HB 1425 takes effect November 1.

    State Issues State Legislation Credit Cards Fees

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  • New Jersey approves mortgage lending bill package

    State Issues

    On April 29, the New Jersey governor approved several bills related to mortgage lending in the state. According to a press release issued by the governor, the package of nine bills addresses the state’s foreclosure crisis and includes the following:

    • A 4997, known as the Mortgage Services Licensing Act, requires persons who act as mortgage servicers—either directly or indirectly—to obtain a license from the New Jersey Commissioner of Banking and Insurance for each office where business is conducted. The Act provides certain licensing exemptions, including federally insured banks and credit unions and their wholly-owned subsidiaries, those already licensed under the state’s Residential Mortgage Lending Act (the Act) who meet certain criteria, and the New Jersey Housing and Mortgage Finance Agency. However, the Act stipulates that sections 9 – 12, which discuss, among other things, record-keeping requirements, late fee restrictions, and required disclosures, apply to all persons, including exempt persons, acting as mortgage servicers in the state. Among other provisions, the Act (i) outlines licensing application requirements, procedures, and expiration terms; (ii) requires licensed mortgage servicers to file annual reports about loan servicing in the state; (iii) stipulates that licenses are non-transferable; (iv) mandates mortgage servicers to file a surety bond, fidelity bond, and evidence of coverage with the Commissioner; (v) requires compliance with all applicable federal laws including RESPA and TILA; (vi) requires mortgage servicers to keep a current schedule of service-related activity fees; and (vii) prohibits mortgage servicers from engaging in unfair or deceptive practices in connection with loan servicing. Moreover, the Act grants the Commission with supervision, investigation, and examination authority. The Act takes effect in 90 days.
    • A 5001 “reduces the statute of limitations in residential mortgage foreclosures from 20 years to six years from the date on which the debtor defaulted, in situations in which the date of default is used as the method to determine when the statute of limitations has expired.” A 5001 takes effect immediately and applies to all residential mortgages executed on or after the effective date.
    • S 3416 states that provisions of the New Jersey Residential Mortgage Lending Act now apply to certain out-of-state persons involved in residential mortgage lending in the state “provided they are otherwise required to be licensed pursuant to the provisions of the [A]ct. . . .” S 3416 takes effect immediately.
    • S 3411, among other things, (i) requires a notice of intention to foreclose on a residential mortgage to be filed within 180 days prior to commencing foreclosure, stating that if a foreclosure proceeding has not yet commenced, “the lender shall send a new written notice at least 30 days, but not more than 180 days, in advance of that action”; and (ii) limits the number of permitted reinstatements of dismissed mortgage foreclosure actions to three, with certain exceptions. S 3411 takes effect August 1, which is the first day of the fourth month following enactment.

    State Issues State Legislation Licensing Mortgages Foreclosure Consumer Finance

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  • Washington state amends debt collection laws

    State Issues

    On April 30, the Washington state governor signed HB 1531 and HB 1066, which amend certain state debt collection laws. HB 1531 covers medical debt and among other things, outlines certain requirements for medical debt collection notices, including providing information regarding the medical creditor, the date(s) of service, and the health care services provided. The notice must also include the principal amount of the debt incurred, interests and fees, and the amount of any payments already received. HB 1531 also prohibits a collector from reporting any adverse information regarding the medical debt to credit reporting agencies until at least 180 days after the obligation with [was?] received by the collector and limits prejudgment interest to nine percent. Additionally, HB 1066 prevents a debt collector from serving a debtor with a court summons unless the summons and complaint are first filed with the appropriate court and bear a case number assigned by the court. The amendments both take effect July 28.

    State Issues Debt Collection State Legislation

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  • Washington state recognizes distributed ledger technology

    State Issues

    On April 26, the Washington state governor signed SB 5638, which recognizes the validity of distributed ledger technology. Intending to expand the scope of the existing federal ESIGN Act, the bill adds a new chapter to the Revised Code of Washington, defining distributed ledger technology as “any distributed ledger protocol and supporting infrastructure, including blockchain, that uses a distributed, decentralized, shared, and replicated ledger.” The bill prohibits an electronic record from being denied “legal effect, validity, or enforceability solely because it is generated or stored using distributed ledger technology.” The bill is effective July 28.

    State Issues State Legislation Blockchain Virtual Currency Fintech

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  • Georgia exempts certain retailers from mortgage licensing requirements

    State Issues

    On April 18, the Georgia governor signed HB 212, which amends the Official Code of Georgia Annotated relating to the licensing of mortgage lenders and mortgage brokers. Under the Act, the following persons, who meet certain requirements, are exempt from state licensing requirements: “retailers and retail brokers of manufactured homes, mobile homes, or residential industrialized buildings.” The Act also revises the definition of a “mortgage broker” to remove the aforementioned categories from the term, and further provides that a “mortgage broker” does not include employees of exempt persons who satisfy specific requirements. The Act takes effect July 1.

    State Issues State Legislation Mortgages Licensing

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