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Financial Services Law Insights and Observations

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  • Virginia amends its foreclosure procedures and requires an affidavit

    State Issues

    Recently, the Governor of Virginia signed HB 184 (the “Act”) which amended the foreclosure procedures and subordinate procedures. Specifically, the Act added a requirement that if the proposed sale was initiated due to a default in payment under a security instrument, then the subordinate mortgage lienholder must submit to the trustee an affidavit affirming that monthly statements were sent to the property owner detailing any interest, fees, or charges assessed. The amendments also provided that the subordinate mortgage lienholder must provide a copy of such affidavit to the person who would pay the instrument with written notice for a request for sale. That notice must advise the person to pay the instrument if the person believed that fees or interest were assessed in error. If the court would agree, then the person will be entitled to recover attorney fees and costs against the subordinated mortgage lienholder after the date of the foreclosure sale. The Act also added a provision that any purchaser at a foreclosure sale provide certification that the purchase will pay off any priority security instrument no later than 90 days from the date that the trustee's deed conveying the property would be recorded in the land records. The Act will go into effect on July 1.

    State Issues Virginia Loans Mortgages Default

  • Virginia enacts new prohibitions against certain electronic fund transfer fees

    On April 17, the Virginia legislature enrolled HB 1519 into law, which amended provisions of the Virginia Code related to fees for electronic fund transfers. The legislation amended the Residential Landlord and Tenant Act to prohibit landlords from charging a tenant a processing fee for using an electronic fund transfer for the payment of either a security deposit, rent, or “any other amounts payable.” The legislation also amended the Virginia Consumer Protection Act to prohibit a supplier from charging a fee to a consumer for using an electronic fund transfer to purchase a good or service. However, this prohibition explicitly does not apply to ATM withdrawals or expedited service on an electronic fund transfer. The Act went into effect immediately upon enactment.

    Licensing Money Service / Money Transmitters Virginia

  • Virginia enacts HB 880, provides protections from lien enforcement against primary residences

    State Issues

    On March 8, the Governor of Virginia signed HB 880 (the “Act”), which will prohibit enforcement of a lien against real estate if the real estate is the judgment debtor’s primary residence and the amount of the lien does not exceed $25,000. Additionally, if the lien will arise from fees charged by a common interest community association (under certain chapters of Virginia law), the Act will prohibit court action to enforce the lien, given the sum of all judgments, (excluding interest and costs), is $5,000 or less. The Act will also impose recordkeeping requirements for such common interest community associations, specifically, (i) to maintain individual assessment account records; and (ii) to maintain records of any recorded lien during its effective duration. The Act will go into effect on July 1.

    State Issues Virginia State Legislation

  • District Court sides with bank in class-action suit against foreign currency swap overcharges

    Courts

    On March 5, the U.S. District Court for the Eastern District of Virginia dismissed a purported class action complaint in which plaintiffs alleged the defendant banks used “fictional” foreign exchange rates that deviated from those incorporated into plaintiffs’ agreements with the defendants. Specifically, the plaintiffs asserted that defendants charged the plaintiffs “fictional” rates imposed by credit card companies, and in so doing, breached their relevant contracts with the plaintiffs and violated several state consumer protection laws.

    In dismissing the complaint, the court concluded that although the plaintiffs had standing to sue, their breach of contract claim failed as a matter of law because the complaint failed to identify any specific promises regarding exchange rates in the relevant contracts, and a singular reference to credit card companies’ rules did not incorporate such rules into the relevant contracts. The court further rejected the plaintiffs’ argument that an agency relationship existed between the credit card companies and defendants, reasoning that the plaintiffs failed to plausibly demonstrate defendants had any ability to control the rates. 

    The court similarly dismissed all the plaintiffs’ consumer protection law claims, concluding that the relevant laws did not permit for a breach of contract to serve as the basis for an unfair or deceptive trade practice.

    Courts Virginia Standing Consumer Protection Data Breach

  • District Court says MLA’s statute of limitations begins upon discovery of facts

    Courts

    The U.S. District Court for the Eastern District of Virginia recently granted an installment lender’s motion to dismiss, ruling that most of the class members’ claims are time-barred by the Military Lending Act’s (MLA) two-year statute of limitations. Plaintiffs are active duty servicemembers who entered into installment loans with the defendant. Claiming four violations of the MLA, plaintiffs alleged the defendant (i) extended loans with interest rates exceeding the MLA’s 36 percent interest rate cap; (ii) extended loans that involved roll overs of prior loans; (iii) required plaintiffs to agree to repayment by allotment (with a backup preauthorized electronic fund transfer) as a condition to receiving a loan; and (iv) required plaintiffs to provide a security interest in their bank accounts as a condition for receiving a loan. Plaintiff sought to certify a class covering the five years preceding the date the complaint was filed. Defendant moved to dismiss, arguing that plaintiffs have only been harmed by technical violations of the MLA and did not suffer a concrete injury. Plaintiffs countered that the defendant’s MLA violations caused them to sustain injuries from making payments, including interest payments, “on loans that were ‘void from [their] inception’ [] due to their unlawful refinancing, allotment, and security interest requirements.”

    The court reviewed a significant issue raised by the parties’ differing interpretations of the MLA’s statute of limitations and its applicability to plaintiffs’ loans. Specifically, the parties disagreed as to whether “discovery by the plaintiff of the violation,” which triggers the two-year limitations period, requires that a plaintiff only discover the facts constituting the basis for the violation, as argued by the defendant, or instead requires that a plaintiff also know that the MLA was violated, as the plaintiffs argued. While acknowledging that the text in question is inconclusive, the court stated that since the MLA “does not require ‘discovery’ of both the ‘violation’ and ‘liability’ but only the ‘violation that is the basis for such liability,’ the text appears to support the interpretation that only discovery of the violative conduct is required, and

    not discovery of the actionability of that conduct.” The court also reviewed other federal statutory discovery rules where other courts “have consistently found that ‘discovery’ requires that a plaintiff have knowledge only of the facts constituting the violation and not the legal implications of those facts.” Relying on this, as well as other court interpretations, the court determined that “the two-year limitations period is triggered when a plaintiff discovers the facts

    constituting the basis for the MLA violation and not when the plaintiff recognizes that these facts

    support a legal claim.” Thus, the court found that most of the loans underlying the claims are time-barred.

    However, for loans that fell within the applicable limitations period, the court granted defendant’s motion to dismiss for failure to state a claim, concluding, among other things, that a creditor is not prohibited from taking a security interest in a plaintiff’s bank account by way of a preauthorized electronic fund transfer provided the military annual percentage rate does not exceed the allowable 36 percent (a claim, the court noted, plaintiffs dismissed and did not otherwise address). Moreover, the court determined that plaintiffs failed to allege that the defendant was a “creditor” under the narrower definition used by the MLA in its refinancing and roll-over prohibition or that the defendant’s “characterization of the convenience of repayment by allotment amounted to a misrepresentation or concealment of facts giving rise to plaintiffs’ MLA claim.”

    Courts State Issues Virginia Military Lending Act Consumer Finance Class Action Servicemembers Interest Rate

  • Virginia establishes program to implement CDFI fund

    State Issues

    On March 26, the Virginia governor signed HB 1411, which codifies the Virginia Community Development Financial Institutions Fund and creates the Virginia Community Development Financial Institutions Program to carry out the purposes of the fund. Among other things, the program will provide grants and loans to community development financial institutions (CDFIs) and other similar entities in order to fund small businesses, housing development and rehabilitation projects, and community revitalization real estate projects. Qualified recipients must emphasize microfinancing (defined as financing to small businesses in amounts of $100,000 or less) when using program funds. The Department of Housing and Community Development will oversee the fund and the program and is required to report annually on the fund’s use and impact. HB 1411 is effective July 1.

    State Issues State Legislation Virginia CDFI

  • Virginia and Kentucky enact requirements for auto renewals

    State Issues

    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.

    State Issues State Legislation Virginia Kentucky Consumer Finance Auto-Renewal

  • Virginia amends remote work requirements for mortgage companies

    On March 26, the Virginia governor signed HB 2389, which permits mortgage lenders and mortgage brokers to allow employees and exclusive agents to work remotely provided certain conditions are met. Requirements to conduct business out of a remote location include: (i) the establishment of written policies and procedures for remote work supervision; (ii) ensuring access to platforms and customer information adheres to the licensee’s comprehensive written information security plan; (iii) the employment of appropriate risk-based monitoring and oversight processes, as well as the agreement from employees or exclusive agents who will work remotely to comply with these established practices; (iv) banning in-person customer interaction at an employee’s or exclusive agent’s residence unless the residence is an approved office; (v) the proper maintenance of physical records; (vi) compliance with federal and state security requirements when engaging in customer interactions and conversations; (vii) access to the licensee’s secure systems via a virtual private network or comparable system with password protection; (viii) the installation and maintenance of security updates, patches, or other alterations; (ix) “the ability to remotely lock or erase company-related contents of any device or otherwise remotely limit access to a licensee’s secure systems"; and (x) the designation of the principal place of business as the mortgage loan originator’s registered location for the purposes of the Nationwide Mortgage Licensing System and Registry record, “unless such mortgage loan originator elects an office as a registered location.” The amendments also add definitions for “office” and “remote location.” The Act is effective July 1.

    Licensing State Issues State Legislation Virginia Mortgages Mortgage Origination NMLS

  • Virginia credit unions may offer virtual currency custody

    State Issues

    On March 23, the Virginia governor signed HB 1727, which amends the Virginia code to allow credit unions operating in the commonwealth to engage in virtual currency custody services, provided the credit union “has adequate protocols in place to effectively manage risks and comply with applicable laws and, prior to offering virtual currency custody services, the credit union has carefully examined the risks in offering such services through a methodical self-assessment process.” The amendments stipulate that in order to engage in such services, a credit union must implement effective risk management systems and controls, confirm adequate insurance coverage, and maintain a service provider oversight program.

    The amendments further provide that a credit union may offer such services in a fiduciary or nonfiduciary capacity; however, in order to provide virtual currency custody services in a fiduciary capacity, the credit union must first obtain approval from the State Corporation Commission. Commission approval is contingent upon a credit union having sufficient capital structure to support providing such services, credit union personnel being adequately trained to ensure compliance with governing laws and regulations, and that granting such authority is in the public interest. The amendments are effective July 1.

    State Issues State Legislation Virginia Credit Union Digital Assets Virtual Currency

  • CFPB: TILA does not preempt state commercial financial disclosures

    Agency Rule-Making & Guidance

    On March 28, the CFPB issued a determination that state disclosure laws covering lending to businesses in California, New York, Utah, and Virginia are not preempted by TILA. The preemption determination confirms a preliminary determination issued by the Bureau in December, in which the agency concluded that the states’ statutes regulate commercial financing transactions and not consumer-purpose transactions (covered by InfoBytes here). The Bureau explained that a number of states have recently enacted laws requiring improved disclosure of information contained in commercial financing transactions, including loans to small businesses. A written request was sent to the Bureau requesting a preemption determination involving certain disclosure provisions in TILA. While Congress expressly granted the Bureau authority to evaluate whether any inconsistencies exist between certain TILA provisions and state laws and to make a preemption determination, the statute’s implementing regulations require the agency to request public comments before making a final determination. In making its preliminary determination last December, the Bureau concluded that the state and federal laws do not appear “contradictory” for preemption purposes, and that “differences between the New York and Federal disclosure requirements do not frustrate these purposes because lenders are not required to provide the New York disclosures to consumers seeking consumer credit.”

    After considering public comments following the preliminary determination, the Bureau again concluded that “[s]tates have broad authority to establish their own protections for their residents, both within and outside the scope of [TILA].” In affirming that the states’ commercial financing disclosure laws do not conflict with TILA, the Bureau emphasized that “commercial financing transactions to businesses—and any disclosures associated with such transactions—are beyond the scope of TILA’s statutory purposes, which concern consumer credit.”

    Agency Rule-Making & Guidance Federal Issues CFPB TILA State Issues Disclosures Preemption California New York Utah Virginia

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