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Financial Services Law Insights and Observations


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  • CDBO takes action against company for PACE fraud

    State Issues

    On May 27, the California Department of Business Oversight (CDBO) filed an order to ban an Encino-based company from the Property Assessed Clean Energy (PACE) industry for allegedly engaging in fraudulent behavior. According to the press release, the CDBO received 30 complaints from 2018 to 2019 alleging the company solicited homeowners by advertising a “free government program,” but used the homeowners’ personal financial information to submit contracts to PACE program administrators with forged electronic signatures. Additionally, complaints alleged various other fraudulent and illegal actions including, (i) the creation of false email accounts to have the PACE financing documents routed to the agents instead of the homeowners; and (ii) the impersonation of homeowners’ voices on state law required completion calls. The CDBO also asserts that the company sold products at three to five times the usual industry rate and used “high-pressure” sales tactics directed at the elderly and non-primary English speakers. In addition to the Desist and Refrain Order, which demands the company discontinue illegal practices and stop soliciting PACE contract, the CDBO notes that a similar but separate order will also be filed against the company president, who is a PACE solicitor agent.

    State Issues PACE Programs California CDBO Consumer Finance Consumer Lending Fraud

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  • California Department of Business Oversight highlights risks of exempt securities offerings

    State Issues

    On May 26, the California Department of Business Oversight issued an investor alert on exempt securities offerings, aka “private placements,” during Covid-19. The alert outlines the reasons why such offerings carry a higher risk of fraud and offers suggestions for potential investors to protect themselves.

    State Issues Covid-19 California CDBO DBO Securities

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  • California Supreme Court: No jury trial for UCL and FAL claims seeking civil penalties in addition to injunctive or other equitable relief


    On April 30, the California Supreme Court issued an opinion holding that under the state’s Unfair Competition Law (UCL) and the False Advertising Law (FAL), government enforcement actions seeking civil penalties in addition to injunctive or other equitable relief should be decided by a judge instead of by a jury. The decision overturns a Court of Appeal decision holding that a jury must weigh in when civil penalties are involved. The decision stems from a suit filed in 2015 by the California Department of Business Oversight and several district attorneys (collectively, “People”) against a national debt payment service operation for alleged violations of the UCL and FAL. While the debt payment service operation demanded a jury trial, the People filed a motion to strike, which the trial court granted. The Court of Appeal overturned the trial court decision, holding that under certain provisions of the California Constitution the debt payment service operation had a right to a jury trial.

    The California Supreme Court disagreed with the Court of Appeal concluding that, among other things, (i) the causes of action established by the UCL and FAL at issue in this case are equitable rather than legal actions, which should be tried by a court rather than by a jury; and (ii) the U.S. Supreme Court’s decision in Tull v. United States, relied upon by the Court of Appeal, does not govern this case for various reasons, including that the U.S. Supreme Court’s interpretation of the civil jury trial provision of the Seventh Amendment of the U.S. Constitution applies only to federal court proceedings—not state court proceedings—and that the “constitution right to a jury trial in state court civil proceedings is governed only by the civil jury trial provisions of each individual state’s own state constitution.” (Emphasis in the original.)


    Courts State Issues Enforcement California CDBO

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  • California DBO sues student loan servicer to compel production of borrower records

    State Issues

    On April 2, the California Department of Business Oversight (DBO) announced a lawsuit against one of the nation’s largest student loan servicers seeking an order requiring the production of documents related to the servicer’s administration of the Teacher Education Assistance for College and Higher Education (TEACH) grant program. According to the press release, DBO began an examination in January under the California Student Loan Servicing Act (Act) to determine whether the licensed servicer is improperly converting California teachers’ TEACH grants into loans with back interest. In its complaint, DBO states that the servicer’s refusal to produce records concerning its “handling of the TEACH program reconsideration process” is based on arguments that California law is preempted by the federal Higher Education Act, and that student borrower records are “legally owned” by the Department of Education and cannot be released under the federal Privacy Act of 1974. Because of the servicer’s refusal to produce the records, DBO claims that the servicer “has failed to satisfy its statutory duties,” and has “unduly restrained” DBO’s ability to both oversee the administration of student loan servicing in the state and protect California student loan borrowers. DBO seeks a preliminary and permanent injunction, as well as a declaratory judgment against the servicer to compel compliance with the Act.

    State Issues State Regulator CDBO Student Loan Servicer Student Lending

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  • California Department of Business Oversight issues advisory to small businesses with merchant cash advance contracts

    State Issues

    On April 6, the California Department of Business Oversight (DBO) issued an advisory to small businesses with merchant cash advance contracts. Small businesses are encouraged to review the terms of their existing financing products to determine whether they may be entitled to relief and report finance companies that fail to honor contractual terms that provide relief. The DBO notes that payments under certain financing arrangements are typically adjustable and may be lowered if the small business is closed as a result of government orders.

    State Issues CDBO California Small Business Lending Merchant Cash Advance Covid-19

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  • California Senate confirms Manuel Alvarez as DBO Commissioner

    State Issues

    On February 24, the California State Senate voted to confirm Manuel Alvarez as Commissioner of the California Department of Business Oversight (DBO). As previously covered by InfoBytes, the California governor announced the appointment in March 2019. The DBO issued an announcement following the confirmation vote, in which Commissioner Alvarez discussed financial service innovations California companies have made over the past decade, including those in the area of mobile payments and online lending to cryptocurrencies. Commissioner Alvarez stated that the changes “hold both promise and peril,” and explained that it is his “goal as Commissioner . . . to strike a sensible balance between consumer protections, which preserve the integrity of [California’s] financial ecosystem, and responsible technological innovation in financial services, which may increase access to quality and affordable financial products.”

    As covered by a recent Buckley Special Alert, a trailer bill accompanying the governor’s proposed 2020-2021 state budget was recently released. The bill would enact the California Consumer Financial Protection Law and rename and expand the DBO’s authority to protect consumers from predatory practices and foster the responsible development of new financial products.

    State Issues State Regulators CDBO State Legislation Consumer Protection

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  • FDIC releases January enforcement actions

    Federal Issues

    On February 28, the FDIC released a list of administrative enforcement actions taken against banks and individuals in January. The FDIC issued 18 orders, which “consisted of two consent orders; one civil money penalty; three removal and prohibition orders; eight section 19 orders; three terminations of consent orders and cease and desist orders; and one order terminating prompt corrective action.” Among the actions was a civil money penalty assessed against a Montana-based bank for allegedly violating the Flood Disaster Protection Act by failing to obtain adequate flood insurance coverage on certain loans and failing to provide borrowers with notice of the availability of federal disaster relief assistance. Separately, in a joint action with the California Department of Business Oversight, the agency issued a consent order against a California-based bank related to alleged weaknesses in its Bank Secrecy Act and anti-money laundering (BSA/AML) compliance program. Among other things, the bank was ordered to (i) retain qualified management to ensure compliance with applicable laws and regulations; (ii) “correct all violations of law to the extent possible”; (iii) implement a revised, written BSA compliance program to address BSA/AML deficiencies; (iv) establish a written Customer Due Diligence Program to ensure the reasonable detection of suspicious activity and the identification of higher-risk customers; (v) adopt a process for reviewing transaction monitoring alerts; and (vi) “ensure that suspicious activity monitoring system is independently validated.”

    Federal Issues FDIC Enforcement Bank Secrecy Act Anti-Money Laundering Cease and Desist Customer Due Diligence FDI Act Civil Money Penalties Flood Disaster Protection Act CDBO Flood Insurance

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  • Special Alert: Trailer bill would enact California Consumer Financial Protection Law

    State Issues

    A trailer bill accompanying the governor’s proposed 2020-2021 state budget would expand the Department of Business Oversight’s (DBO) authority and enact the California Consumer Financial Protection Law (Law).

    Specifically, the provisions outlined in the proposed Law would revamp and rename the state’s DBO, expand its authority to protect consumers from predatory practices, and foster the responsible development of new financial products. Under California’s Constitution, a trailer bill — which provides for an appropriation related to the budget bill — takes effect immediately after a simple majority vote and the governor’s signature.

    * * *

    Click here to read the full special alert.

    If you have any questions regarding the California Consumer Financial Protection Law or other related issues, please visit our Consumer Finance practice page or contact a Buckley attorney with whom you have worked in the past.

    State Issues State Legislation Consumer Finance Consumer Protection Predatory Lending UDAAP Special Alerts CDBO

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  • Point-of-sale finance company enters into consent order with California DBO

    State Issues

    On January 16, the California Department of Business Oversight (DBO) and a point-of-sale finance company entered into a consent order to resolve the DBO’s allegations that the company had made loans without a license to California consumers. According to the order, the company applied for a license under the California Financing Law (CFL) in September 2019. The DBO initially denied the company’s license application on December 30, 2019 (previously covered by InfoBytes here) and issued a statement of issues explaining its reasoning. The DBO found that the company’s transactions were disguised loans subject to the CFL. The company had argued that its transactions were credit sales not subject to the CFL. Ultimately, the company agreed to resolve the matter and pay $282,000 in refunds to consumers and a $28,200 fine for unlicensed lending. Additionally, the company agreed to “cease providing loans or extensions of credit to California residents by means of purchasing credit sales contracts from merchants” and “only provide loans or extensions of credit to California residents under the authority of a license issued by the Commissioner under the CFL.” Simultaneous with the announcement of the consent order, the DBO issued the company a license.

    State Issues Consumer Finance Consumer Lending | Consumer Finance Licensing Consent Order Fintech CDBO

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  • California governor proposes strengthening state consumer protection authority and increasing financial innovation

    State Issues

    On January 10, the California governor submitted his proposal for California’s 2020-2021 state budget, which would, among other things, include the creation and administration of the California Consumer Protection Law (Law). The governor’s budget summary indicates that “[t]he federal government’s rollback of the CFPB leaves Californians vulnerable to predatory businesses and leaves companies without the clarity they need to innovate.”  The proposed Law is intended to provide “consumers with more protection against unfair and deceptive practices when accessing financial services and products.” To create and administer the Law, the proposed budget contemplates the expansion of the Department of Business of Oversight’s (DBO) authority to “protect consumers” and “foster the responsible development of new financial products.” In light of the expanded role, the governor also proposed renaming the DBO to the Department of Financial Protection and Innovation. The governor’s budget includes an allocation to the DBO of a $10.2 million Financial Protection Fund and 44 positions in 2020-2021, which would increase to $19.3 million and 90 positions in 2022-2023 for creating and implementing the Law.

    According to the DBO’s website, the DBO currently “provides protection to consumers and services to businesses engaged in financial transactions” and “oversees the operations of state-licensed financial institutions, including banks, credit unions, money transmitters, issuers of payment instruments and travelers checks, and premium finance companies.” Under the governor’s budget proposal summary, in addition to the DBO’s current functions, the DBO will have greater authority to “pursue unlicensed financial service providers not currently subject to regulatory oversight such as debt collectors, credit reporting agencies, and financial technology (fintech) companies, among others.”

    The budget proposal summary provides that the DBO’s new activities will include:

    • Offering services to educate consumers (e.g., older Americans, students, military service members, and recent immigrants).
    • Licensing and examining industries that are currently under-regulated.
    • Analyzing market patterns and developments for evidence-based policies and enforcement.
    • Enforcing against unfair, deceptive, and abusive practices.
    • Establishing a new Financial Technology Innovation Office, which will be tasked with proactively promoting “responsible development of new consumer financial products.”
    • Providing legal support for the administration of the Law.
    • Expanding administrative and IT staff to support the DBO’s increased authority.

     The details of the Governor’s budget proposal have not yet been published.

    State Issues Consumer Finance CFPB CDBO State Regulators State Legislation Debt Collection Fintech Licensing

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