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CFPB contests Kentucky banks' motion to block enforcement of Small Business Lending Rule
On September 5, the CFPB filed an opposition to a motion for a preliminary injunction made by a group of Kentucky banks (plaintiff banks) in the U.S. District Court for the Eastern District of Kentucky. As previously covered by InfoBytes, the plaintiff banks filed their motion for a preliminary injunction seeking an order to enjoin the CFPB from enforcing the Small Business Lending Rule against them for the same reasons that a Texas district court enjoined enforcement of the rule (Texas decision covered by InfoBytes here). The CFPB argues that the plaintiff banks have not satisfied any of the factors necessary for preliminary relief, including that they have not shown that their claim is likely to succeed on the merits, and they have not shown that they face imminent irreparable harm. The Bureau also argues that the plaintiff banks are factually wrong in asserting that the Rule would require lenders to compile “‘scores of additional data points’ about their small business loans,” and that the additional data requirements are consistent with the Bureau’s statutory authority to require such additional data if it assists in “‘fulfilling the purposes of [the statute].’” The CFPB argues, among other things, that the “outlier ruling of the 5th Circuit” in the Texas case does not demonstrate that the plaintiff banks are entitled to the relief they seek.
Virginia and Kentucky enact requirements for auto renewals
Recently, Virginia and Kentucky enacted measures relating to automatic renewal offers and continuous service offers.
HB 1517 was signed by the Virginia governor on March 27 to amend the Consumer Protection Act in the Virginia code. The amendments provide that all businesses offering automatic renewals or continuous service offers that include a free trial lasting longer than 30 days are required to notify consumers of their option to cancel the free trial within 30 days of the end of the trial period. Providing this notice will avoid obligating a consumer to pay for the goods or services. Failing to timely notify a consumer is a violation of the Virginia Consumer Protection Act. Additionally, a business also violates the statute should it fail “to disclose the total cost of a good or continuous service [] to a consumer, including any mandatory fees or charges, prior to entering into an agreement for the sale of any such good or provision of any such continuous service.” HB 1517 is effective July 1.
SB 30 was signed by the Kentucky governor on March 23 to amend state law by adding sections addressing the termination of automatic renewal offers and continuous service officers. Among other things, the new sections define several terms, including “automatic renewal,” “automatic renewal offer terms,” “clear and conspicuous,” “consumer,” and “continuous service.” Businesses are required to provide clear and conspicuous automatic renewal or continuous service offer terms to consumers before the subscription or purchase agreement is fulfilled. Business also must obtain affirmative consent before charging a consumer’s credit or debit account or a consumer’s account with a third party. Additionally, businesses must (i) provide an acknowledgement that includes the terms, the cancellation policy, and information regarding how to cancel in a manner that can be retained by the consumer; (ii) give consumers appropriate mechanisms for cancellation; (iii) provide users who accept an automatic renewal or continuous service online the opportunity to terminate in the same medium; and (iv) provide a notice regarding material term changes. SB 30 outlines exemptions (including contracts entered into prior to the effective date), and states that first-time violators must “provide a prorated refund for the contract subject to an automatic renewal provision from the start of the most recent term to the date on which the business was notified of and corrects the error.” The state attorney general also may bring an action for injunctive and monetary relief against businesses that either fail to provide a prorated refund or where it is a business’s second or subsequent violation. SB 30 is effective January 1, 2024.
Kentucky modifies allowable charges on consumer loans
On March 29, Kentucky enacted SB 165 to amend Kentucky code to modify permitted loan charges for consumer loan companies. Specifically, licensees may make loans up to $15,000, excluding charges; however, the original principal amount determines how much a licensee may charge, contract for, and receive on a loan. For loans with an original principal amount under $5,000, a licensee may charge up to 3 percent per month on the original principal of the loan, as well as on any charges, including fees, costs, expenses, or other amounts authorized by the act on the loan contract. Licensees may charge 2.42 percent on loans between $5,000 and $10,000, and 2.25 percent on loans exceeding $10,000. Additionally, every loan payment may now “be applied to the face amount of the note until the loan contract is paid in full.” The amendments also stipulate that a licensee is not allowed to “induce or permit a person to become obligated to the licensee, directly or contingently, or both under any loan contract entered into within [10] days of the origination of another loan contract with the same person for the purpose or with the result of obtaining charges.” Moreover, should a licensee make a second or subsequent loan to a person outside of the 10-day period, “the licensee shall not be required to limit the loan charges to the aggregate amount of what the loans combined would dictate under this subtitle.” For borrowers that request loan funding in a manner other than a physical check, a licensee may charge a $3 funding fee per loan for distributing the proceeds in the manner requested by the borrower. The amendments are effective 90 days after adjournment of the legislature.
District Court says defendant’s request for default judgment was more than "procedural mishap"
On May 11, the U.S. District Court for the Eastern District of Kentucky partially granted and partially denied a defendant collection attorney’s (defendant’s) motion to dismiss a FDCPA suit. According to the memorandum opinion and order, the plaintiff defaulted on a loan and the defendant was hired to file a collection lawsuit on behalf of the creditor. Though the plaintiff responded to the suit, the defendant filed a motion for default judgment and motion for attorney’s fees, which was not served for the plaintiff. The defendant attempted to have the plaintiff’s employer garnish his wages, but the plaintiff challenged the garnishment. After reviewing the case, the state court vacated the default judgment and ordered the sides to arbitration. The collection suit was ultimately dismissed with prejudice. The current stage of the suit involves the plaintiff suing the defendant, alleging he violated the FDCPA by improperly seeking default judgment, failing to serve the motion for default judgment, opposing his wage garnishment challenge, and requesting disingenuous attorney’s fees. The district court granted the defendant’s motion to dismiss on the attorney’s fees and the provisions related to the wage garnishment. However, in respect to the allegations related to the filing for default judgment and failure to serve, the district court denied the motion to dismiss. The district court noted that the defendant’s “request for default judgment was more than ‘procedural mishap’—it was a ‘false, deceptive, or misleading representation [] in connection with the collection of any debt’ that seemingly caused faulty default judgment to be entered.”
Kentucky enacts mortgage loan industry regulation bill
On April 8, the Kentucky governor signed HB 643, which relates to regulating mortgage lenders. Among other things, the bill: (i) permits employees of a licensee to engage in the mortgage lending process from an alternate location if certain conditions are met; (ii) requires supervision and control of employees acting as mortgage loan originators; (iii) establishes requirements for licensees that allow employees to engage in the mortgage lending process from alternate work locations; (iv) prohibits records from being maintained at an alternate work location; and (v) permits mortgage loan companies and mortgage loan brokers to utilize third-party secure storage facilities if certain conditions are met.
FDIC announces Kentucky and Alabama disaster relief
On April 30, the FDIC issued FIL-31-2021 and FIL-32-2021 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Kentucky and Alabama affected by severe storms. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things, (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.
Kentucky governor orders closing of all non-life-sustaining businesses
On March 25, Kentucky Governor Andy Beshear issued an executive order mandating that only “life-sustaining businesses” may remain open and encouraged citizens to remain “healthy at home.” The list of life-sustaining businesses includes banks, credit unions, mortgage companies, payday lenders, check cashers, money transmitters, and securities institutions.
Kentucky Department of Financial Institutions provide guidance to non-depository institutions
On March 24, The Kentucky Department of Financial Institutions (DFI) provided guidance to non-depository institutions to take steps to comply with CDC directives and Governor Andy Beshear’s guidance and executive orders. Entities are ordered to reduce face-to-face transactions; work with customers affected by the coronavirus to meet their financial needs; implement policies and procedures to work constructively with customers (including by restructuring existing loans, extending repayment terms, and waiving fees); manage COVID-19 related staffing issues; and ensure that business continuity plans include pandemic planning.
Kentucky Department of Financial Institutions issues guidance on changes in operations
The Kentucky Department of Financial Institutions issued a statement recommending Kentucky chartered financial institutions to work with customers affected by Covid-19 to meet their financial needs, including waiving overdraft fees, restructuring existing loans, and extending loan payment terms. The statement provides that any bank or credit union that significantly alters its in-person operations should notify the Director of the Division of Depository Institutions by email.