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District Court partially affirms summary judgment in interest case
On April 28, the U.S. District Court for the Southern District of New York granted in part and denied in part parties’ motions for summary judgment in a suit challenging the retroactive application of a New York statute reducing the state’s statutory interest rate on money judgments arising out of consumer debt. In doing so, the court considered S5724A, the Fair Consumer Judgment Interest Act. As previously covered by InfoBytes, the New York governor signed S5724A in December 2021, which amended the civil practice law and rules relating to the rate of interest applicable to money judgments arising out of consumer debt. Specifically, the bill provides that the interest rate that can be charged on unpaid money judgments is 2 percent and applies to judgments involving consumer debt, which is defined as “any obligation or alleged obligation of any natural person to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family or household purposes […], including, but not limited to, a consumer credit transaction, as defined in [section 105(f) of the civil practice law and rules].” The bill became effective April 30. According to the suit, a group of credit unions (plaintiffs) filed a federal class action lawsuit seeking to enjoin the enforcement or implementation of S5724A. The plaintiffs sought to invalidate the retroactive portion of S.5724A, arguing that it is an unconstitutional taking in violation of the Fifth Amendment and violative of their substantive due process rights guaranteed under the Fourteenth Amendment. The plaintiffs claimed that they are collectively owed about $3.8 million of outstanding consumer judgments, which includes approximately $1 million in interest, and sought a preliminary injunction enjoining the effective date of S572A. The plaintiffs brought suit against the Chief Administrative Judge of the New York State Courts, and the sheriffs of three New York counties in their official capacity on the basis that those parties “will be involved in enforcement of the Amendment.” The district court issued the preliminary injunction with respect to the sheriffs, relying on the credit unions’ arguments that retroactive application will “eradicate millions of dollars from the balance of judgments lawfully due and owing to judgment creditors.” The district court noted that “[r]egulatory takings … involve government regulation of private property [that is] . . . so onerous that its effect is tantamount to a direct appropriation or ouster. Thus, ‘while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.’”
Remittance provider denies CFPB allegations
On May 2, a global payments provider recently sued by the New York attorney general and the CFPB responded to allegations claiming the “repeat offender” violated numerous federal and state consumer financial protection laws in its handling of remittance transfers. As previously covered by InfoBytes, the complaint claimed the defendant, among other things, (i) violated the Remittance Rule requirements by repeatedly failing “to provide fund availability dates that were accurate, when the Rule required such accuracy”; (ii) “repeatedly ignored the Rule’s error-resolution requirements when addressing notices of error from consumers in New York, including in this district, and elsewhere;” and (iii) failed to establish policies and procedures designed to ensure compliance with money-transferring laws, in violation of Regulation E. The complaint further asserted that the defendant violated the CFPA “by failing to make remittance transfers timely available to designated recipients or to make refunds timely available to senders,” and that the defendant failed to adopt and implement a comprehensive fraud prevention program mandated by a 2009 FTC order for permanent injunction (covered by InfoBytes here).
The defendant refuted the charges, calling the allegations “false, inflammatory and misleading.” According to the defendant, “before the CFPB filed its lawsuit against the Company on April 21, 2022, [it] had never before been subject to any enforcement action by the CFPB, nor had [it] ever been publicly accused of violating any of the laws or regulations under the CFPB’s purview.” The defendant also took issue with the Bureau’s suggestion that it had “uncovered widespread and systemic issues involving ‘substantial’ consumer harm,” contending that “data from the CFPB’s own consumer complaint portal strongly suggest otherwise. For example, a search of the CFPB’s Consumer Complaint Database shows that in the nine years that the Remittance Rule has been in place, only 351 complaints were made to the CFPB against [the defendant] for failing to deliver money when promised. These complaints represent 0.0001% of the over 325 million transactions subject to the Remittance Rule that [the defendant] processed during that time period. In New York, the total number of complaints in the CFPB Database for that time period was 28, approximately three per year. There have simply never been widespread or systemic violations by [the defendant] of the Remittance Rule.”
New York AG settles with student loan servicer for alleged PSLF and IDR failures
On April 27, the New York attorney general announced a settlement with a national student loan servicer, resolving allegations that it failed to properly manage student loans and administer the Public Service Loan Forgiveness (PSLF) program by inaccurately counting loan payments, improperly denying applications, and not processing applications in a timely manner. As previously covered by InfoBytes, the New York AG filed a complaint against the defendant in 2019 alleging violations of the CFPA and New York law, whereby the defendant, among other things, (i) failed to accurately count borrower’s PSLF-qualifying payments; (ii) failed to provide timely explanations to borrowers for PSLF payment count determinations; (iii) failed to process income driven repayment (IDR) plan paperwork accurately and timely; and (iv) lacked clear policies and procedures for addressing errors, resulting in inconsistent treatment of borrowers.
Under the terms of the settlement, the defendant is required to automatically review nearly 10,000 accounts of New York borrowers for various potential errors, including incorrect information provided about PSLF or IDR eligibility and inaccurate monthly payment charges, among other things. In addition, more than 300,000 current New York residents may be eligible to have their accounts reviewed at no cost to them. The defendant is required to send out notices to borrowers within 30 days. Borrower relief may include crediting of undercounted payments, refunds of overpayments, interest, monetary payments, and modifications to past payments to designate them as PSLF-qualifying. The defendant will implement enhanced quality assurance review procedures designed to identify errors.
CFPB, New York sue remittance provider
On April 21, the CFPB and New York attorney general filed a complaint against a remittance provider (defendant) for allegedly violating the Electronic Funds Transfer Act and its implementing Regulation E and the Remittance Rule (the Rule) and the Consumer Financial Protection Act (CFPA), among various consumer financial protection laws. The Bureau’s announcement called the defendant a “repeat offender” citing that in 2018, the FTC filed a motion for compensatory relief and modified order for permanent injunction against the defendant, which alleged that it failed to adopt and implement a comprehensive fraud prevention program mandated by the 2009 order (covered by InfoBytes here). The CFPB complaint alleges that from October 2018 through 2022, the defendant: (i) violated the Remittance Rule requirements by repeatedly failing “to provide fund availability dates that were accurate, when the Rule required such accuracy”; (ii) “repeatedly ignored the Rule’s error-resolution requirements when addressing notices of error from consumers in New York, including in this district, and elsewhere;” and (iii) failed to establish policies and procedures designed to ensure compliance with money-transferring laws, in violation of Regulation E. The complaint further noted that the defendant’s “own assessments of consumers’ complaints showed that the dates Defendants disclosed to consumers, repeatedly, were wrong,” and that the defendant “found multiple delays in making funds available to designated recipients, including delays that constituted errors under the Rule,” among other things. Finally, the Bureau claims that the defendant violated the CFPA “by failing to make remittance transfers timely available to designated recipients or to make refunds timely available to senders.” The Bureau’s complaint seeks consumer restitution, disgorgement, injunctive relief, and civil money penalties. According to a statement released by CFPB Director Rohit Chopra, "the remittance market is ripe for reinvention, and the CFPB will be examining ways to increase competition and innovation for the benefit of both families and honest businesses, while also avoiding creating a new set of harms."
NYDFS encourages banks to expand access to low-cost banking services
On April 15, NYDFS issued guidance determining that offering a “Bank On” certified deposit accounts would satisfy a New York Basic Banking services law that requires institutions to offer low-cost banking services to consumers. According to NYDFS, Bank On accounts (which offer services that eliminate several fees, including overdraft, account activation, closure, dormancy, inactivity, and low balance fees) may be offered as an alternative to existing basic banking accounts. Following an assessment of the New York banking industry to determine the receptiveness and operational viability of offering Bank On accounts, NYDFS concluded that “all New York State regulated banking institutions, as defined under Section 14-f.9(a) of the New York Banking Law . . ., will be deemed to satisfy the Basic Banking requirements under the New York Banking Law and the General Regulations of the Superintendent, by offering Bank On accounts as an alternative to Basic Banking accounts.” Banking institutions may offer Bank On accounts instead of Basic Banking accounts without the need to submit a separate application to the NYDFS for approval. However, because the national standards for Bank On accounts are subject to change without input from NYDFS, institutions that offer the accounts should keep up to date on the national standards.
The guidance follows an announcement from New York Governor Kathy Hochul stating that the “COVID-19 pandemic has shown how important it is for every New Yorker to have financial security.” Stressing that “access to low-cost banking services is critical to managing and securing their financial needs,” Hochul stated that “[t]hese new accounts will help hard working individuals in underserved communities get the affordable, accessible banking options they need and is a crucial step towards ensuring a more inclusive economy for all.”
NYDFS encourages banks to expand access to low-cost banking services
On April 15, NYDFS issued guidance determining that offering a “Bank On” certified deposit accounts would satisfy a New York Basic Banking services law that requires institutions to offer low-cost banking services to consumers. According to NYDFS, Bank On accounts (which offer services that eliminate several fees, including overdraft, account activation, closure, dormancy, inactivity, and low balance fees) may be offered as an alternative to existing basic banking accounts. Following an assessment of the New York banking industry to determine the receptiveness and operational viability of offering Bank On accounts, NYDFS concluded that “all New York State regulated banking institutions, as defined under Section 14-f.9(a) of the New York Banking Law . . ., will be deemed to satisfy the Basic Banking requirements under the New York Banking Law and the General Regulations of the Superintendent, by offering Bank On accounts as an alternative to Basic Banking accounts.” Banking institutions may offer Bank On accounts instead of Basic Banking accounts without the need to submit a separate application to the NYDFS for approval. However, because the national standards for Bank On accounts are subject to change without input from NYDFS, institutions that offer the accounts should keep up to date on the national standards.
The guidance follows an announcement from New York Governor Kathy Hochul stating that the “COVID-19 pandemic has shown how important it is for every New Yorker to have financial security.” Stressing that “access to low-cost banking services is critical to managing and securing their financial needs,” Hochul stated that “[t]hese new accounts will help hard working individuals in underserved communities get the affordable, accessible banking options they need and is a crucial step towards ensuring a more inclusive economy for all.”
NYDFS to collect assessment fees from licensed virtual currency businesses
On April 9, the New York governor signed S. 8008-C, which enacts the state’s 2023 fiscal year budget and requires, among other things, NYDFS to start charging a new assessment fee to all virtual currency businesses licensed in New York in order to cover the costs associated with their oversight and “defray operating expenses.” Specifically, Section 206 is amended to read: “The expenses of every examination of the affairs of any person regulated pursuant to this chapter that engages in virtual currency business activity shall be borne and paid by the regulated person so examined, but the superintendent, with the approval of the comptroller, may in the superintendent’s discretion for good cause shown remit such charges.” The amendments do not specify a specific assessment amount, however regulated companies engaged in virtual currency business activity “shall be assessed by the superintendent for the operating expenses of the department that are solely attributable to regulating such persons in such proportions as the superintendent shall deem just and reasonable.”
NYDFS Superintendent Adrienne A. Harris issued a press release the same day praising the budget adoption as it now allows the Department to collect supervisory costs from licensed virtual currency businesses as it does for banking and insurance companies. Noting that “New York was the first to start licensing and supervising virtual currency companies,” Harris said that the “new authority will empower the Department to build staff with the capacity and expertise to best regulate and support this rapidly growing industry.”
NYDFS addresses “potential confusion” over new consumer credit transaction SOL
On April 7, NYDFS issued guidance to debt collectors addressing potential confusion about how to comply with the notice requirements of 23 N.Y.C.R.R. § 1.3(b) that went into effect April 7. The new amendments are set forth in Section 4 of the Consumer Credit Fairness Act (which was enacted last November and was covered by InfoBytes here), and address the statute of limitations (SOL) applicable to actions arising out of consumer credit transactions. Specifically, Section 214-i provides that “when the applicable limitations period expires, any subsequent payment toward, written or oral affirmation of or other activity on the debt does not revive or extend the limitation period.” The amendments also decreased the SOL period to three years and requires additional notices to be made. While the guidance provides sample disclosure statements that address each of the requirements under § 1.3(b), NYDFS states that “23 N.Y.C.R.R. § 1.3 does not prohibit debt collectors from adding explanatory language to the model disclosure language set forth in § 1.3(c) or using their own language to comply with § 1.3(b).”
NYDFS’ guidance follows letters sent last month by the New York attorney general to several large credit card companies and major debt collectors operating in the state, which reminded entities about the new obligations and disclosures that will be required when filing collection lawsuits against consumers starting May 7. (Covered by InfoBytes here.)
NY AG warns debt collectors of new state regulations
On March 29, the New York attorney general announced that letters were sent to large credit card companies and major debt collectors operating in New York, providing a warning regarding new state debt collection regulations. As previously covered by InfoBytes, the New York governor signed S.153 in November 2021, which enacted The Consumer Credit Fairness Act and expanded consumer protections against abusive debt collection by, as explained by NYDFS acting Superintendent Adrienne A. Harris, “address[ing] known predatory debt collection practices, [and] barring an abusive common tactic engaged by predatory debt collectors which is to sue on time-barred consumer debts for which they lack even the most basic of documentation.” The letter noted that its recipients are “aware of these obligations and that [they] are taking appropriate steps to comply with the new requirements.” The letter stated that beginning April 7, the statute of limitations on consumer debt collection actions in the state will be decreased to three years, a period of time that cannot be extended by partial payments made after the statute of limitations has expired, and that “debt collectors must ensure that validation notices for debts that will become time-barred on April 7, 2022 include this disclosure if the notice is likely to be received after that date.” The letter also reminded debt collectors of new disclosures that will be required when filing collection lawsuits against consumers starting May 7. Complaints are required to include an itemization of the debt and include more information about the chain of ownership, including providing a copy of the original contract on which the debt is based. Collectors must also begin utilizing a “more comprehensive” notice that is provided to the clerk of the court and subsequently passed on to consumers and must use a new form when filing for summary judgments. Lastly, the letter requested information on how the companies are complying with Regulation F and the new disclosure requirements.
2nd Circuit remands case to determine whether loans that violate New York’s criminal usury law are void ab initio
On March 15, the U.S. Court of Appeals for the Second Circuit vacated a district court ruling that had declined to treat an option that permits a lender, in its sole discretion, to convert an outstanding balance to shares of stock, at a fixed discount, as interest for purposes of New York’s criminal usury law. The district court had also observed, though it had no need to reach the issue, that even if the loan was usurious, it would not necessarily be void ab initio. After the case was appealed, the 2nd Circuit certified both issues to the New York Court of Appeals, which concluded, contrary to the district court, that such an option should be treated as interest for purposes of the usury statute and that loans made in violation of the usury statute are void ab initio. In light of the New York Court of Appeals holdings on these issues of state law, the 2nd Circuit vacated the district court’s order, and remanded to the district court to determine, in the first instance, whether the value of the option rendered the loan usurious.