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New York enacts law covering collection of family member debts
On December 28, the New York governor signed S3491A, which amends the state’s general business law to add a section prohibiting principal creditors and/or debt collection agencies from making any representations that a person is required to pay the debt of a family member in a way that contravenes the FDCPA or that misrepresent the person’s obligation to pay such debts. The amendment defines “debt collection agency” as “a person, firm or corporation engaged in business, the principal purpose of which is to regularly collect or attempt to collect debts: (a) owed or due or asserted to be owed or due to another; or (b) obtained by, or assigned to, such person, firm or corporation, that are in default when obtained or acquired by such person, firm or corporation.” The law is effective 90 days after enactment.
Ohio mortgage servicers now required to register
On December 19, 2018, the Ohio Governor signed Substitute House Bill 489 (HB 489), which amends the Ohio Residential Mortgage Lending Act (RMLA) to, among other things, require a person acting as mortgage servicer to obtain a Residential Mortgage Lending Act Certificate of Registration in the state, unless exempt from the RMLA. The amendments define a “mortgage servicer” as an entity that holds mortgage servicing rights, records mortgage payments on its books, or carries out other responsibilities under the mortgage agreement.
HB 489 also revises the laws governing financial institution regulations and consumer protections. Specifically, it includes amendments which (i) provide some regulatory relief to state banks and credit unions concerning the frequency of examinations that meet certain conditions; (ii) enable requests for data analytics to be conducted on publicly available information regarding regulated state banks, credit unions, and consumer finance companies; and (iii) require that a specified notice be given to a debtor for certain collections related to defaulted debt secured by junior liens on residential properties.
The amendments take effect 91 days after the bill is filed with the Ohio Secretary of State.
New York governor creates task force to study digital currency industry
On December 21, the New York governor signed A08783, which creates a digital currency task force to conduct a comprehensive review related to the regulation of cryptocurrencies in the state. The act requires the task force to issue a report by December 15, 2020, with recommendations to “increase transparency and security, enhance consumer protections, and to address the long-term impact related to the use of cryptocurrency.” The report will also contain a review of laws and regulations on digital currency, including those used by other states, the federal government, and foreign countries.
Illinois amends Residential Mortgage License Act
On December 19, the Illinois governor signed HB 5542, which amends the state’s Residential Mortgage License Act of 1987 (the Act) to make various changes to state licensing requirements. Among other things, the amended Act (i) clarifies the definition of a “bona fide nonprofit organization”; (ii) provides a list of prohibited acts and practices; (iii) stipulates that a licensee filing a Mortgage Call Report is not required to file an annual report with the Secretary of Financial and Professional Regulation (Secretary) disclosing applicable annual activities; (iv) repeals a provision requiring the Secretary to obtain loan delinquency data from HUD as part of an examination of each licensee; (v) clarifies that the notice of change in loan terms disclosure requirements do not apply to any licensee providing notices of changes in loan terms pursuant to the CFPB’s Know Before You Owe mortgage disclosure procedure under TILA and RESPA, while removing the provision that previously excluded licensees limited to soliciting residential mortgage loan applications as approved by the Secretary from the requirements to provide disclosure of changes in loan terms; (vi) removes certain criteria concerning the operability date for submitting licensing information to the Nationwide Multistate Licensing System; and (vii) makes other technical and conforming changes. The amendments are effective immediately.
Pennsylvania amends state Check Casher Licensing Act
On October 24, the Pennsylvania governor signed HB 2453, which amends the state’s Check Casher Licensing Act to make several changes in the licensing process for check-cashing entities. Specifically, the amendments (i) allow for check-cashing licenses to be issued for up to 14 months; (ii) require a licensee to demonstrate that it is conducting business in accordance with the law for annual renewal; and (iii) allow for the suspension or revocation of licenses for certain activities, including material misstatements in the application and engaging in dishonest, fraudulent, or illegal practices or conduct in connection with the check casher business. The amendments also, among other things, clarify that a licensee may not cash or advance any money on post-dated personal checks, but allow for the cashing of post-dated government checks if the check is dated no more than five days after it is presented to the licensee and the fee does not exceed the maximum permitted under the Act. Additionally, the amendments authorize fines of up to $10,000 for violations of the act. The amendments are effective on December 23, 2018.
Consumer advocates testify before Senate Commerce Committee on need for federal consumer data privacy legislation
On October 10, the Senate Committee on Commerce, Science, and Transportation held the second in a series of hearings on the subject of consumer data privacy safeguards. The hearing entitled “Consumer Data Privacy: Examining Lessons From the European Union’s General Data Protection Regulation and the California Consumer Privacy Act” heard from consumer privacy advocates on lessons from the European Union’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) of 2018, and what types of consumer protections should be considered in future federal legislation. Committee Chairman, Senator John Thune, opened the hearing by emphasizing the importance of promoting privacy without stifling innovation. Senator Thune stated that, while understanding the experience of technology and telecommunications companies in this space is important, any new federal privacy law must also incorporate views from affected industry stakeholders and consumer advocates.
The consumer privacy advocate witnesses agreed there is a need for heightened consumer protections and rights, and that the time is ripe to have a debate on what a consumer data privacy law at the federal level would look like and how it would work with state level laws. However, witnesses cautioned that federal legislation should create a floor and not a ceiling for privacy that will not prevent states from passing their own privacy laws. One of the witnesses who led the effort behind the California ballot initiative that resulted in the CCPA emphasized that federal legislation should contain a robust enforcement mechanism, while a witness from the Center for Democracy & Technology said that (i) lawmakers should give the FTC the ability to fine companies that violate consumers’ privacy and provide the agency with more resources; and (ii) a federal law should cover entities of all sizes and clarify what secondary and third-party uses of data are permissible.
Among other things, the hearing also discussed topics addressing: (i) GDPR open investigations; (ii) support for state Attorney General enforcement rights; (iii) privacy protections for children, including the strengths and weaknesses of the Children’s Online Privacy Protection Act, particularly with respect to children ages 13 and older; and (iv) consumers’ rights to control their personal data.
New York prohibits auto lenders from remotely disabling a vehicle without providing notice
On October 2, the New York governor signed SB 2484, which prohibits auto lenders from remotely disabling a vehicle without first providing notice of the disabling to the debtor. The act amends the state’s uniform commercial code and the general business law, in significant part, by: (i) defining a “payment assurance device” (“any device installed in a vehicle that can be used to remotely disable the vehicle”); (ii) requiring written notice of the possible remote disabling of a vehicle “in the method and timetable” agreed in the initial contract between the parties; (iii) identifying permissible methods of notice transmittal; and, (iv) specifying the permitted period between the postmarking of the notice and the date on which the auto lender or its agent obtains the right to disable the vehicle. The act takes effect immediately.
California to appoint “blockchain” working group
On September 28, the California governor signed AB 2658, which requires the Secretary of the Government Operations Agency to appoint a blockchain working group by July 1, 2019. (The act defines blockchain as “a mathematically secured, chronological, and decentralized ledger or database.”) The working group is charged with evaluating, among other things, (i) the risks and benefits associated with the use of blockchain by state government and California-based businesses; (ii) the legal implications of the use of blockchain; and (iv) best practices for enabling blockchain technology to benefit the state and its businesses and residents. The act, which has a sunset date of January 1, 2022, requires the working group to provide a report to the legislature by July 1, 2020.
New California law requires non-bank lenders and other finance companies to provide commercial financing disclosures
On September 30, the California governor signed SB 1235, which requires non-bank lenders and other finance companies to provide written consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances. Most notably, the act requires financing entities subject to the law to disclose in each commercial financing transaction — defined as an “accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes”— the “total cost of the financing expressed as an annualized rate” in a form to be prescribed by the California Department of Business Oversight (DBO).
Although the act is effective immediately, the act requires the DBO to first develop regulations governing the new disclosure requirements, and lenders are not required to comply with the provisions of the act until the final regulations are adopted and become effective. Once final regulations are in place, recipients of commercial financing offers will have to sign the disclosures, which are to be provided at the time of the offer. The disclosures must include (i) the total amount of funds provided; (ii) the total dollar cost of the financing; (iii) the term or estimated term; (iv) the method, frequency, and amount of payments; (v) a description of prepayment policies; and (vi) the total cost of the financing expressed as an annualized rate. Finance companies subject to the law are required to provide the annualized financing rate until January 1, 2024, at which time that portion of the disclosure requirement sunsets. The act also allows for finance companies who offer factoring or asset-based lending to provide alternative disclosures using an example transaction that could occur under the agreement.
Importantly, the act does not apply to (i) depository institutions; (ii) lenders regulated under the federal Farm Credit Act; (iii) commercial financing transactions secured by real property; (iv) a commercial financing transaction in which the recipient is a vehicle dealer, vehicle rental company, or affiliated company, and meets other specified requirements; and (v) a lender who makes no more than one applicable transaction in California in a 12-month period or a lender who makes five or fewer applicable transactions that are incidental to the lender’s business in a 12-month period. The act also does not cover (i) true leases, but will apply to bargain-purchase leases; (ii) commercial loans under $5,000, which are considered consumer loans in California regardless of any business-purpose and subject to separate disclosure requirements; and (iii) commercial financing offers greater than $500,000.
California law establishes small dollar lending pilot program
On September 30, the California governor signed AB 237, which establishes a pilot program under the California Financing Law with the stated purpose of encouraging lenders to provide affordable small dollar loans to consumers. Significant features of the program include: (i) an increase to the upper limit of a permissible loan, from $2,500 to $7,500; and (ii) the authorized imposition of specified alternative interest rates and charges on unsecured loans of at least $300 and less than $2,500.
Under California’s Pilot Program for Increased Access to Responsible Small Dollar Loans (Pilot Program), licensees who choose to participate in the Pilot Program will be required to apply and pay a specified fee to the Commissioner of Business Oversight (Commissioner). Participating licensees will also be required, among other things, to (i) determine a borrower’s ability to repay the loan, factoring in all verifiable outstanding credit and capping total monthly debt service payments at 50 percent of the borrower’s gross monthly income for loans of $2,500 or less and 36 percent for loans greater than $2,500; (ii) establish terms of 180 days or more for loans with principal balances of at least $1,500, but less than $2,500, upon origination; (iii) establish terms of no less than one year and no more than five years for loans with principal balances exceeding $2,500; (iv) implement policies and procedures for the purpose of answering borrower questions and performing reasonable background checks on any finders associated with the licensee’s participation in the Pilot Program (AB 237 permits approved licensees to use the services or one more finders); and (v) reduce the interest rate of each subsequent loan made to the same borrower by a minimum of one percentage point under certain conditions. In addition, AB 237 allows the Commissioner to charge a licensee certain fees associated with the use of a finder, stipulates examinations requirements for licensees and finders, and establishes deadlines and requirements for the Commissioner when submitting required findings from the Pilot Program. The Pilot Program will run through January 1, 2023.
Governor Brown issued a message in conjunction with his signing AB 237 expressing his concern, among others, that increasing the cap on small dollar loans without also providing stricter regulatory oversight may lead to “unintended consequences.” Governor Brown requested that the state’s Department of Business Oversight “increase their vigilance and more carefully oversee both lenders and finders to ensure their actions comply with existing law.”