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On January 23, the CFPB announced a settlement with an online loan broker resolving allegations that the broker violated the Consumer Financial Protection Act 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. Specifically, the CFPB alleges the broker (i) misrepresented the contracts he facilitated as valid, when, in fact, under federal law veterans’ pension payments are unassignable; (ii) misrepresented to consumers that the offer was a “sale” of a product not a high-interest credit offer; (iii) misrepresented to consumers when they would receive their loan funds; and (v) failed to disclose the applicable interest rate on the loans. Under the program, veterans were also required to obtain life insurance policies in order to ensure the outstanding amount would be repaid even if the veteran died. Under the terms of the consent order, the broker is prohibited from engaging in the specified conduct in the future and is required to assist the Bureau in identifying and locating the veterans who were harmed. The Bureau required the broker to pay $1 in civil money penalties, based on his financial statements.
On January 17, the CFPB issued a statement from Bureau Director Kathy Kraninger announcing she has asked Congress to grant the Bureau “clear authority to supervise for compliance with the Military Lending Act (MLA).” The statement expresses Kraninger’s interest in protecting servicemembers and their families and notes the requested authority would complement the Bureau’s MLA enforcement work. The announcement acknowledges the recently introduced House legislation, H.R. 442, which would directly grant the Bureau supervisory authority over the MLA, and also includes suggested draft legislation the Bureau sent to both the U.S. House of Representatives and the U.S. Senate (here and here). The draft legislation would amend the Consumer Financial Protection Act to include a section providing the Bureau “nonexclusive authority to require reports and conduct examinations on a periodic basis” for the purposes of (i) assessing compliance with the MLA; (ii) obtaining information about the compliance systems or procedures associated with the law; and (iii) detecting and assessing associated risks to consumers and to markets.
As previously covered by InfoBytes, in August 2018, then acting Director Mick Mulvaney internally announced the Bureau would cease supervisory examinations of the MLA, contending the law did not explicitly grant the Bureau the authority to examine financial institutions for compliance. A bipartisan coalition of 33 state Attorneys General wrote to Mulvaney expressing concern over the decision and after her confirmation, a group of 23 House Democrats urged Kraninger to resume the examinations. (Covered by InfoBytes here and here.)
The Bureau’s request that Congress grant it authority to examine for compliance with the MLA suggests that it does not intend to do so unless Congress acts.
On December 14, Maxine Waters (D-CA) and 22 other House Democrats issued a letter urging the new CFPB Director, Kathy Kraninger, to resume supervisory examinations of the Military Lending Act (MLA). As previously covered by InfoBytes, according to reports citing “internal agency documents,” the Bureau ceased supervisory examinations of the MLA, contending the law does not authorize the Bureau to examine financial institutions for compliance with the MLA. In response, a bipartisan coalition of 33 state Attorneys General sent a letter to then acting Director, Mick Mulvaney, expressing concern over the decision (covered by InfoBytes here).
The letter from Waters, who is expected to be the next chair of the House Financial Services Committee, and the other 22 Democratic members of the Committee, argues that “there is no question the [CFPB] has the authority and the responsibility to supervise its regulated entities for compliance with the MLA.” As support, the letter cites to the Bureau’s authority to oversee a “wide range of regulated entities,” the establishment of the Bureau’s Office of Servicemember Affairs, and the 2013 amendments to the MLA, which gave the Bureau the authority to enforce the act. The letter also points to the Bureau’s work obtaining $130 million in relief for servicemembers, veterans, and their families through enforcement actions, as well as the 109 complaints the Bureau has received from military consumers since 2011.
On December 6, the CFPB announced the filing of a complaint and proposed final judgment in the U.S. District Court for the District of Nevada against a non-bank mortgage company for allegedly deceiving veterans about the benefits of refinancing their mortgages in violation of the Consumer Financial Protection Act. According to the complaint, during in-home presentations, the company would allegedly use flawed “apples to apples” comparisons between the consumers’ mortgages and an Interest Rate Reduction Refinancing Loan (a loan, guaranteed by the Department of Veterans Affairs, which allows veterans to refinance mortgages at lower interest rates). The Bureau alleges the presentations misrepresented the future cost savings of the refinance by (i) inflating the future amount of principal owed under the existing mortgage; (ii) overestimating the future loan’s term, which underestimated the future monthly payments; and (iii) overestimating the total monthly benefit of the loan after the first month.
If ordered by the court, the judgment would require the company to pay $268,869 in redress to consumers and a civil penalty of $260,000; it would also prohibit the company from misrepresenting the terms or benefits of mortgage refinancing.
On October 30, the Department of Veterans Affairs (VA) released Circular 26-18-25, which clarifies the effect on a veteran’s home loan entitlement when the VA pays a guaranty on a home loan terminated by foreclosure, short sale, or deed-in-lieu of foreclosure. Specifically, for loans originated on or after January 1, 1990, the circular clarifies that the VA no longer establishes debts against veterans after the VA pays a guaranty to reimburse a servicer for its loss. However, if the veteran wants to reuse the VA home loan benefit, then he or she is required to reimburse the VA for the loss amount. The loss only affects the veteran’s entitlement under the VA Home Loan Guaranty program and does not impact any other VA benefits. The veteran may choose to repay the loss to restore the full entitlement or use any of the remaining entitlement amount that may be available to the veteran. The circular is effective until October 1, 2020.
On November 2, the DOJ announced a $95,000 settlement with a credit union resolving allegations that the credit union violated the Servicemembers Civil Relief Act (SCRA) by repossessing vehicles owned by servicemembers without first obtaining the required court orders. According to the complaint, which was filed on the same day the settlement was announced, the DOJ launched an investigation into the credit union’s repossession practices after learning of two private complaints filed against the credit union for alleged SCRA violations. Through the investigation, the DOJ discovered additional violations and that the credit union did not have policies and procedures that addressed non-judicial auto repossessions against servicemembers until August 2014. Under the terms of the settlement, the credit union is required to pay $65,000 to compensate affected servicemembers and a civil money penalty of $30,000. In addition, the company must submit its employee SCRA training materials for approval and complete reporting, record-keeping, and monitoring requirements.
On October 29, the New York Attorney General announced the filing of a complaint against a national jewelry store, headquartered in New York, for allegedly engaging in fraudulent and deceptive conduct, deceptive credit repair services, and illegal lending in the financing of jewelry sales to active duty servicemembers. Specifically, the complaint alleges the company targets active duty servicemembers through a purported charitable program in which military-themed teddy bears are sold with a promise of a charitable donation by the company. The company also sells patriotic and military-themed jewelry and offers financing through a program exclusively available to servicemembers. The financing program is marketed as a credit repair or credit-establishing opportunity through a different entity, but according to the complaint, the separate entity is merely an “alter-ego” of the jewelry company, a relationship which is not disclosed to servicemembers. The company markets the financing program to active duty servicemembers as a way to build credit scores to purchase other consumer goods, such as a motor vehicle; however, once a servicemember agrees to the program, the Attorney General alleges the company’s employees are instructed to “’sell’ enough product to maximize the amount of credit [the company] is willing to advance.” The amount of credit is allegedly based on the amount of time the servicemember has left in active service, not on traditional underwriting standards such as credit history. Additionally, the complaint alleges the company marks up poor-quality jewelry between 600 and 1,000 percent over the wholesale price and advertises a “per payday” price on the merchandise, which bears “little resemblance to the total amount paid by a consumer at the end of the financing contract.” Of special interest to all creditors doing business in New York, the complaint appears to include in its civil and criminal usury claims the concept that the effective interest rate was higher because the good being purchased had “inflated retail prices.” The complaint seeks civil money penalties, restitution, and injunctive relief.
On October 23, a bipartisan coalition of 33 state Attorneys General sent a letter to acting Director of the CFPB, Mick Mulvaney, expressing concern over reports that the Bureau is no longer supervising financial institutions for compliance with the Military Lending Act (MLA). The Attorneys General wrote that the Bureau would be “failing to abide by its statutorily mandated duty to enforce the MLA” by interpreting its authority to preclude the examination of lenders for compliance with the act. Specifically, the Attorneys General point to recent amendments to the MLA providing that the statute “shall be enforced” by the Bureau (among other agencies) “under any . . . applicable authorities available to the [Bureau].” This includes the authority to examine lenders “to ‘detect and assess risks to consumers.” According to the Attorneys General, the origination of non-MLA compliant loans to servicemembers constitutes such a risk.
On September 19, the California governor signed AB 3212 that provides several benefits and protections to servicemembers under the state’s Military and Veterans Code. The legislation’s protections apply to members of the National Guard, State Military Reserve, and the Naval Militia called to full-time active state service or full-time active federal service, as well as other individuals called to full-time active duty for a period in excess of seven days in any 14-day period. Highlights of the amendments include:
- Extension of Interest Rate Protection. The legislation extends the prohibition on charging an interest rate in excess of six percent on any obligations bearing interest to 120 days after military service. The legislation also extends the six percent interest rate protection for student loans to one year after military service, which previously only applied to mortgage obligations.
- Written response for Good Faith Requests for Relief. The legislation requires that any person who receives a good faith request from a servicemember for relief and believes the servicemember is not entitled to the relief to provide, within 30 days of the request, a written response acknowledging the request. The written response must include (i) the basis for asserting that the request was incomplete or that the servicemember is not entitled to the relief; (ii) information/materials that are missing, if the servicemember’s request was deemed incomplete; and (iii) contact information. If the written response is not provided, the person waives any objection to the request, and the servicemember shall be entitled to the relief requested.
- Extension of the Default Judgment Protection. At any stage in any action or proceeding in which a servicemember is involved, the court may stay an action or proceeding during the period of military service or 120 days thereafter (previously 60 days).
- Inclusion of Motor Vehicles in the Lease Termination Protection. Existing state law allows for the termination of leases of premises that are occupied for dwelling, professional, business, agricultural, or similar purposes by the servicemember, upon entry into military service. The legislation now mirrors the federal Servicemember Civil Relief Act protections for motor vehicle lease termination. Specifically, it provides that a servicemember may terminate a motor vehicle lease after the servicemember’s entry into military service for a period of not less than 180 days. Additionally, it provides for cancelation of leases executed while in a period of military service if the servicemember receives military orders for a change of permanent station from a location in the continental U.S. to a location outside the continental U.S., or from a location in a state outside the continental U.S. to any location outside that state, or to deploy for a period not less than 180 days.
California governor signs bill amending reservist requirement for deferring financial obligations when called to active duty
On July 9, the governor of California signed into law amendments to Section 800 of the state’s Military and Veterans Code to eliminate the requirement that a reservist called to active duty provide a letter signed under penalty of perjury to an obligor for deferment of certain financial obligations. Specifically, AB 2521 states that a reservist, or his or her designee, is now required instead to deliver a written request—which includes electronic communications— to an obligor for a deferment of financial obligations, including mortgages, credit cards, retail installment accounts and contracts, and vehicle leases. The amendments take effect January 1, 2019.
- Jonice Gray Tucker to discuss “Getting your company ready: Managing fair lending for IMBs” at the Mortgage Bankers Association Independent Mortgage Bankers Conference
- Jonice Gray Tucker to discuss “Be Your Compliance Best in 2022” at the California Mortgage Bankers Association webinar
- Lauren R. Randell to discuss “Significant legal developments in the Northeast” at the 37th Annual National Institute on White Collar Crime
- Jonice Gray Tucker to discuss “Small business & regulation: How fair lending has evolved & where it is heading?” at the Consumer Bankers Association Live program
- Jonice Gray Tucker and Kari Hall to discuss “Equity, equality, regulation and enforcement – The evolving regulatory landscape of fair lending, redlining, and UDAAP” at the ABA Business Law Committee Hybrid Spring Meeting