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Financial Services Law Insights and Observations

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  • California governor signs legislation extending tenant protections

    State Issues

    On January 29, the California governor signed SB 91, which provides relief to tenants and small property owners, and extends the eviction moratorium established under AB 3088 (previously discussed here), which is set to expire at the end of January. Among other things, under SB 91, a housing provider and similar entities are prohibited from using an alleged Covid-19 rental debt as a negative factor for evaluating a prospective housing application. In addition, the bill would prohibit a person from selling or assigning unpaid rental debt or charging or increasing fees related to late payment of Covid-19 rent. The bill also extends other eviction protections to July 1, 2021.

    State Issues Covid-19 California Tenant Rights Mortgages

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  • OCC urges court to uphold valid-when-made rule

    Courts

    On January 14, the OCC moved for summary judgment in an action filed by the California, Illinois, and New York attorneys general (collectively, “states”) challenging the OCC’s valid-when-made rule, arguing that the challenge is without merit and that the agency “reasonably interprets the ‘gap’ in [12 U.S.C. § 85] concerning what happens when a national bank sells, assigns, or transfers a loan.” As previously covered by InfoBytes, the OCC’s final rule was designed to effectively reverse the Second Circuit’s 2015 Madden v. Midland Funding decision and provides that “[i]nterest on a loan that is permissible under [12 U.S.C. § 85 for national bank or 12 U.S.C. § 1463(g)(1) for federal thrifts] shall not be affected by the sale, assignment, or other transfer of the loan.” The states challenged the rule, arguing that it is “contrary to the plain language” of section 85 (and section 1463(g)(1)) and “contravenes the judgment of Congress,” which declined to extend preemption to non-banks. Moreover, the states contend that the OCC “failed to give meaningful consideration” to the commentary received regarding the rule, essentially enabling “‘rent-a-bank’ schemes.” 

    In response, the OCC argued that not only does the final rule reasonably interpret the “gap” in section 85, it is consistent with section 85’s “purpose of facilitating national banks’ ability to operate their nationwide lending programs.” Moreover, the agency asserts that 12 U.S.C. § 25b’s preemption standards do not apply to the final rule, because, among other things, the OCC “has not concluded that a state consumer financial law is being preempted.” The final rule “addresses only the ‘substantive [ ] meaning’ of § 85” and Congress “expressly exempted OCC’s interpretations of § 85 from § 25b’s requirements.” Lastly, the OCC argued that it made an “informed and reasoned decision,” including addressing issues raised during the public comment period. Thus, the court should uphold the final rule and affirm summary judgment for the agency.

    Courts State Issues State Attorney General OCC Madden Fintech Interest Rate New York California Illinois Preemption Bank Regulatory

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  • California voters approve expanded privacy rights

    Privacy, Cyber Risk & Data Security

    On November 3, California voters approved a ballot initiative, the California Privacy Rights Act of 2020 (CPRA), that expands on the California Consumer Privacy Act (CCPA). While there are a number of differences between the CPRA and the CCPA, some key provisions include:

    • Adding expanded consumer rights, including the right to correction and the right to limit sharing of personal information for cross-context behavioral advertising, whether or not for monetary or other valuable consideration.
    • Changing the definitions of various entities, including increasing the numerical threshold for being a business to 100,000 from 50,000 consumers and households and removing devices from this threshold.
    • Adding the category of sensitive personal information that is subject to specific rights.
    • Creating a new privacy agency, the California Privacy Protection Agency, to administer, implement, and enforce the CPRA.

    It is important to note that the Gramm-Leach-Bliley Act and Fair Credit Reporting Act exemptions are in the CPRA, and the act extends the employee and business-to-business exemption to January 1, 2023.

    Implementation deadlines

    The CPRA becomes effective January 1, 2023, with enforcement delayed until July 1, 2023. However, the CPRA contains a look-back provision (i.e., the CPRA will apply to personal information collected by a business on or after January 1, 2022). The new privacy agency also is required to begin drafting regulations starting on July 1, 2021, with final regulations to be completed one year later.

    Learn more

    Please refer to a Buckley article for further information on the differences between the CCPA and the CPRA: 6 Key Ways the California Privacy Rights Act of 2020 Would Revise the CCPA (Corporate Compliance Insights), as well a continuing InfoBytes coverage here.

    Privacy/Cyber Risk & Data Security CCPA CPRA California Consumer Protection Ballot Initiative

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  • California state bar committee addresses litigation funding

    State Issues

    Recently, the State Bar of California Standing Committee on Professional Responsibility and Conduct  (COPRAC) issued Formal Opinion no. 2020-204 (Opinion), which discusses the ethical obligations of an attorney whose client seeks litigation funding. According to the Opinion, litigation funding—the practice of an unrelated third-party providing funds for litigation in return for a portion of any financial recovery—is not prohibited by law in California, noting that prohibitions against champerty or its variants have never been recognized in the state. However, the Opinion acknowledges several ethical considerations an attorney must consider when working with a client using litigation funding. These considerations include, (i) “understanding how the terms of the funding agreement” may impact litigation decisions; (ii) acting in the client’s best interest at all times, particularly when the client’s interest may depart from the litigation funder’s; and (iii) informing the client of the confidential information risks that exist once a relationship with the funder is formed and communications between the parties continue.

    The Opinion was published after COPRAC released the Proposed Formal Opinion Interim no. 14‑0002, seeking feedback from interested parties with a comment period beginning on September 6, 2019 and ending on January 14, 2020. Throughout its discussion of attorney ethics involved in the practice, the Opinion provides pertinent policy reasons why litigation funding should generally be viewed favorably in California as a means to provide access to justice. The Opinion follows Burford Capital’s recent debut on the New York Stock Exchange, an example of litigation funding, as a practice, becoming more widely accepted.

    State Issues Litigation Funding California

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  • California extends measures to provide regulatory relief, reduce Covid-19 impact

    State Issues

    On October 28, the California governor issued an executive order extending previously granted relief due to the continuing negative impact of the Covid-19 pandemic on businesses and individuals. The order suspends or extends numerous requirements related to professional fees, reporting and applications through June 2021.

    State Issues Covid-19 California Bank Regulatory

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  • California Department of Real Estate issues FAQs regarding licensing process

    State Issues

    On September 21, the California Department of Real Estate issued FAQs on licensing processes during Covid-19. The FAQs respond to questions regarding, among other things, how to determine whether an exam has been cancelled and how to reschedule the exam, the best way to complete a renewal of an expiring real estate license, completing continuing education requirements, and whether the DRE will accept electronic signatures on licensing documents.

    State Issues Covid-19 California Licensing Examination Real Estate Mortgage Licensing

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  • Judicial Council of California votes to end temporary eviction and judicial foreclosure rules

    State Issues

    On August 13, the Judicial Council of California voted to end two temporary emergency rules governing evictions and judicial foreclosures. The first rule prohibited the issuance of summons or entering of defaults in eviction actions unless the case involved public health and safety issues, and required that trials be set at least 60 days after a request for a trial. The second emergency rule stayed all pending judicial foreclosure actions other than those involving issues of public health and safety, tolled the statute of limitations on filing such actions, and extended the deadlines for election or exercise of rights relating to such actions. Pursuant to the vote, the rules end on September 1, 2020. The Judicial Council previously approved the temporary emergency rules staying eviction and foreclosure proceedings on April 6, 2020.

    State Issues Covid-19 California Evictions Foreclosure Mortgages

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  • California DBO investigates auto title lender over out-of-state bank partnership

    State Issues

    On September 3, the California Department of Business Oversight (CDBO) announced a formal investigation into a California auto title lender to determine whether the lender is evading state interest rate caps through a recent partnership with a Utah-based bank. The California Fair Access to Credit Act—enacted in 2019—caps annual simple interest rates on loans between $2,500 and $10,000 made by state-licensed lenders at around 36 percent (covered by InfoBytes here). The CDBO asserts that prior to the new interest rate caps taking effect, the auto title lender frequently made loans carrying interest rates in excess of 100 percent. Rather than reducing its interest rates to comply with the new law, the lender “stopped making state-licensed auto title loans in California,” and instead used “its existing lending operations and personnel” to market and service auto title loans purportedly made by the Utah-based bank. These loans, the CDBO claims, still carry interest rates greater than 90 percent, but because the Utah-based bank is not regulated or supervised by the CDBO it is not subject to the interest rate caps when lending in California. According to the CDBO, its investigation is intended to find out whether the auto title lender’s “role in the arrangement is so extensive as to require compliance with California’s lending laws” and if the arrangement is a “direct effort to evade the Fair Access to Credit Act,” which CDBO contends would be illegal.

    State Issues California CDBO State Regulators Auto Finance True Lender

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  • California DBO addresses MTA licensing exemptions

    State Issues

    Last month the California Department of Business Oversight (CDBO) released two new opinion letters covering aspects of the California Money Transmission Act (MTA) related to the sale of foreign currency and the agent of the payee exemption.

    • Sale of Foreign Currency. The redacted opinion letter concludes that the company’s banknote replenishment service does not trigger the licensing requirements of the MTA because the company does not engage in “selling  or receiving payment instruments, selling or receiving stored value, or receiving money for transmission.” Moreover, the CDBO determined that the company “does not issue anything to the business except for the foreign currency that was ordered, and does not receive money from the business for purpose of transmission.” 
    • Agent of Payee Exemption - Payment Processing Service. The redacted opinion letter concludes that neither the company’s pay-in services nor pay-out services are exempt from the MTA. According to the letter, the company provides payment processing services to online gaming operators (merchants), which allow the merchants’ customers to submit payments to engage in online gaming, such as sports betting and daily fantasy sports betting. The CDBO determined that the pay-in and pay-out services provided by the company “constitute ‘receiving money for transmission,’” as required for the MTA to apply, because the company “receives money from the [c]ustomers for transfer to the [m]erchants” for the pay-in service and “receives money from the [m]erchants for transfer to the [c]ustomers” for the pay-out service.  However, the agent of the payee exemption does not apply to the pay-in services, despite an agreement that establishes the company as the merchant’s agent, because the funds received by the company are not owed to the merchant when they are received by the company. Instead, such funds are retained in an account for the benefit of the merchant until a gambling debt is owed to the merchant. For the pay-out services, the exemption does not apply because the merchant’s customer does not provide any goods or services to the merchant for which the merchant’s payment to the customer is owed. The CDBO also advised that some of the proposed payments described in the company’s request may involve sports betting, which is an illegal activity in the state, and cautioned that the opinion “applies only to activities that are currently legal in California and does not relieve [the company] from its obligation to comply with other applicable state and federal laws.” Furthermore, the CDBO stated that MTA licenses cannot be issued to companies engaged in the transmission of money to facilitate unlawful activities.

    State Issues Licensing California Money Service / Money Transmitters State Regulators CDBO California Money Transmission Act DFPI

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  • California governor signs legislation providing tenant and landlord protections

    State Issues

    On August 31, the California governor signed AB 3088, which provides relief from eviction and foreclosure due to the economic impacts of Covid-19. Pursuant to AB 3088, a tenant may not be evicted before February 1, 2021 if a Covid-19-related hardship caused the tenant to miss a rent payment accruing between March 4 and August 31, 2020, if the tenant provides a declaration of hardship that complies with certain timelines set forth in the legislation. For hardships that accrue between September 1, 2020, and January 1, 2021, tenants must pay a portion of the rent due to avoid eviction. Among other things, the legislation also extends anti-foreclosure protections in the Homeowners Bill of Rights to small landlords.

    State Issues Covid-19 California Mortgages Tenant Rights Evictions Foreclosure

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