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Financial Services Law Insights and Observations

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  • California small business sues nonbank lender over PPP prioritization

    Federal Issues

    On May 6, a small California business filed a proposed class action against a nonbank lender, accusing the lender of a “scheme to enrich itself at the expense of small businesses in connection with the federal government’s Paycheck Protection Program (PPP),” in violation of California’s Unfair Competition Law. In the complaint, the plaintiff alleges she submitted an application for less than $25,000 to the lender on March 28 and received an email response that same day acknowledging receipt of her application. On March 29, the plaintiff received another email from the lender, which asked her to gather documentation and stated that she would receive an invitation to a secure portal in the next “48 business hours.” According to the complaint, however, by April 13, the plaintiff had not yet received a link to the portal, but the lender had sent an email acknowledging the delay. The complaint states that the plaintiff “informed and believes, and on that basis alleges” that the lender “chose to prioritize higher loans that would yield higher fees,” and did not disclose to the public that “it was prioritizing loans not on a first come, first served basis, but on criteria relating to the value of the loan.” The plaintiff alleges she would have chosen a different lender had she known the lender was going to prioritize larger loans. The complaint seeks injunctive relief, restitution, as well as compensatory and punitive damages.

    Federal Issues Covid-19 Courts SBA Small Business Lending Fintech Nonbank State Issues California

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  • Lawsuit claims Treasury, SBA PPP loan eligibility guidance is contrary to CARES Act

    Federal Issues

    On May 4, a group of businesses filed a lawsuit in the U.S. District Court for the Central District of California against the Small Business Administration (SBA) and the U.S. Department of Treasury (defendants) challenging guidance issued by the defendants in April that they claim “directly contradicts and changes the CARES Act.” The guidance, issued in the form of FAQs #31 and 37 (covered by InfoBytes here and here), addresses whether businesses owned by large companies or private companies with adequate sources of liquidity are eligible for a Paycheck Protection Program (PPP) loan. Among other things, the guidance instructs borrowers to consider other sources of liquidity other than PPP funds, and states that while lenders may rely on the borrower certification of need, a borrower must still certify in good faith that their PPP loan request is necessary.

    The plaintiffs argue that the guidance is contrary to the CARES Act because it imposes a requirement that borrowers must be unable to get credit elsewhere before they can qualify, and suggests that businesses may be ineligible for PPP loans if they qualify for “other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” The consequences of the guidance, they argue, is that they may now be required to repay PPP funds with money they either do not have or must borrow since they could have obtained “credit elsewhere,” thus damaging their financial stability. The plaintiffs seek injunctive relief enjoining the defendants from enforcing the guidance, as well as a declaration that the guidance is contrary to law and must be withdrawn.

    Federal Issues Courts Department of Treasury SBA Small Business Lending California CARES Act Covid-19

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  • California executive order exempts Covid-19 assistance payments from garnishment

    State Issues

    On April 23, Governor Newsom issued an executive order which provides that, with certain exceptions, CARES Act financial assistance payments and any other federal, state or local government assistance provided to individuals in response to the Covid-19 outbreak are exempt from garnishment, attachment, levy, or execution. The exemption extends to assistance funds placed into any account. The executive order also prohibits financial institutions from executing any lien or exercising any right of setoff against these funds.

    State Issues Covid-19 California CARES Act

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  • States offer relief to student loan borrowers not covered by CARES Act

    Federal Issues

    On April 23 and 21, nine states announced a multi-state initiative to provide student loan relief options for borrowers with privately held student loans not covered by the CARES Act. California, Colorado, Connecticut, Illinois, Massachusetts, New Jersey, Vermont, and Washington outlined within their announcements specific measures for borrowers with commercially-owned Federal Family Education Loan Program loans and borrowers with private student loans who are struggling to make payments due to the Covid-19 pandemic. The announcements also noted that Virginia is participating in the initiative as well. These relief options, offered in conjunction with the listed private student loan servicers, include (i) a minimum 90-days of forbearance relief; (ii) a waiver of late fees; (iii) no negative credit reporting; (iv) a 90-day moratorium on collection lawsuits; and (v) enrollment in applicable borrower assistance programs, such as income-based repayment. The states cautioned that enrollment in these relief options is not automatic, and recommended borrowers contact their student loan servicer to see what options best suit their needs.

    In addition, California, Colorado, Connecticut, New Jersey, Vermont, and Washington recommended that regulated student loan servicers with limited ability to take these actions due to investor restrictions or contractual obligations “should instead proactively work with loan holders whenever possible to relax those restrictions or obligations.”

    Federal Issues Student Lending State Issues State Regulators Covid-19 CARES Act Colorado Connecticut Illinois Massachusetts New Jersey Vermont Washington California Virginia

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  • California Department of Real Estate updates FAQs for licensing processes

    State Issues

    On April 15, the California Department of Real Estate updated its FAQs for licensing processes. The FAQs answer questions relating, among other things, to the closure of DRE offices, the cancellation and rescheduling of licensing exams, renewal of real estate license, and electronic signatures on licensing documents.

    State Issues Covid-19 California Real Estate Mortgages Licensing ESIGN Fintech

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  • California insurance commissioner issues bulletin requiring premium refunds, credits, and reductions

    State Issues

    On April 13, the California insurance commissioner issued Bulletin 2020-3 to property and casualty insurers regarding premium refunds, credits, and reductions in response to Covid-19. In light of the reductions in risk across certain lines of insurance as a result of reduced activity during Covid-19, insurers are required to make an initial premium refund for the months of March and April to all adversely impacted California policyholders for certain lines of insurance as soon as practicable but within 120 days from April 13. The bulletin contains additional guidance regarding how to refund the premiums, whether approval is required from the Department of Insurance for certain changes in premiums, and reporting requirements for actions taken.

    State Issues Covid-19 California Insurance

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  • California Department of Real Estate issues guidance regarding late submission of certain required reports

    State Issues

    On April 13, the California Department of Real Estate (DRE) issued guidance providing that the DRE will review situations on a case-by-case basis with respect to deadlines for filing certain DRE required reports. Entities that are late in submitting their reports are requested to add a signed explanation as to the delay, if possible. The DRE will work with brokers who miss deadlines due to disruptions resulting from Covid-19.

    State Issues Covid-19 California Real Estate Broker-Dealer Mortgages

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  • California’s attorney general advises tenants of new rights

    State Issues

    On April 7, the California attorney general issued updated guidance for California tenants that encourages them to take control of their rights under the state Judicial Council’s April 6 emergency eviction rule. The guidance alerts tenants that nothing in the emergency rule stops landlords from filing new eviction cases but it prevents them from proceeding for 90 days after the ongoing state of emergency is lifted. It also encourages tenants to research local eviction moratoriums that may provide additional protections. 

    State Issues California State Attorney General Consumer Finance Covid-19

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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 counties announce waiver of penalties and charges for late filing of property taxes for inability to pay caused by Covid-19

    State Issues

    On April 4, the California State Association of Counties and the California Association of County Treasurers and Tax Collectors announced that California counties will use their existing authority to cancel penalties and other charges for homeowners, small businesses, and other property owners that are unable to pay their property taxes due to circumstances caused by Covid-19 on a case-by-case basis. The statement emphasizes that property owners who can pay or have not been directly affected by Covid-19 should still pay on time to keep critical government services running. 

    State Issues Covid-19 California Mortgages Auto Finance Property Tax

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