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Financial Services Law Insights and Observations


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  • Massachusetts AG fines auto dealer $1.5 million for predatory lending

    State Issues

    On March 9, the Massachusetts attorney general announced a consent judgment to resolve a 2017 lawsuit brought against an auto dealership and its in-house lender alleging that the dealership misled consumers into purchasing unfavorable sale packages in violation of Massachusetts’ consumer protection law. As previously covered by InfoBytes, the complaint alleged that more than half of the auto dealer’s sales failed or ended in repossession due to misleading sales practices, predatory lending, and faulty underwriting. The consent judgment follows a January court decision awarding summary judgment in favor of the AG’s office. According to the AG’s press release, the auto dealer agreed to provide monetary and injunctive relief to resolve the entirety of the lawsuit’s allegations. The relief includes (i) paying $1.5 million, half of which will go towards reducing ongoing payments on active loans for consumers who purchased cars prior to 2018; (ii) providing eligible consumers who had their vehicles repossessed the option to cancel outstanding debts and repair their credit from the repossession; (iii) improving business practices to ensure provision of fair disclosures and enhanced repair services; and (iv) developing a structured process for handling consumer complaints received by the AG.

    State Issues State Attorney General Enforcement Predatory Lending Auto Finance Consumer Protection Consumer Complaints

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  • Special Alert: Trailer bill would enact California Consumer Financial Protection Law

    State Issues

    A trailer bill accompanying the governor’s proposed 2020-2021 state budget would expand the Department of Business Oversight’s (DBO) authority and enact the California Consumer Financial Protection Law (Law).

    Specifically, the provisions outlined in the proposed Law would revamp and rename the state’s DBO, expand its authority to protect consumers from predatory practices, and foster the responsible development of new financial products. Under California’s Constitution, a trailer bill — which provides for an appropriation related to the budget bill — takes effect immediately after a simple majority vote and the governor’s signature.

    * * *

    Click here to read the full special alert.

    If you have any questions regarding the California Consumer Financial Protection Law or other related issues, please visit our Consumer Finance practice page or contact a Buckley attorney with whom you have worked in the past.

    State Issues State Legislation Consumer Finance Consumer Protection Predatory Lending UDAAP Special Alerts CDBO

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  • Representatives hold hearing on “rent-a-bank” schemes

    Federal Issues

    On February 5, the House Financial Services Committee held a hearing titled “Rent-A-Bank Schemes and New Debt Traps: Assessing Efforts to Evade State Consumer Protections and Interest Rate Caps” to discuss policies relating to state interest rate caps and permissible interest rates on small dollar loans such as payday and car-title loans. As previously covered by a Buckley Special Alert, in November, the OCC and the FDIC proposed rules meant to override the 2015 Madden v. Midland funding decision from the U.S. Court of Appeals for the Second Circuit, and reinforce that when a national bank or savings association, or state chartered bank, transfers a loan, the permissible interest rate after the transfer is the same as it was prior to the transfer. In January, however, a group of attorneys general from 21 states and the District of Columbia submitted a comment letter to the OCC claiming the proposed rule would encourage predatory lending through “rent-a-bank schemes.” (Covered by InfoBytes here.) During the hearing, Committee Chairwoman Maxine Waters (D-CA), expressed concern that the two agency proposals would harm consumers by allowing non-banks to partner with banks and enable non-bank lenders to “peddle harmful short-term, triple-digit interest rate loans.” Representative Rashida Tlaib (D-MI) echoed that concern when she suggested that “rent-a-bank” schemes allow non-banks to dodge state interest rate laws. Many Republicans had views differing from those expressed by Tlaib and Waters. North Carolina Representative Patrick McHenry remarked that the proposals from the OCC and the FDIC merely formalized the “valid when made” rule that had been in use for over a century. At the hearing, HR 5050, which would cap federal interest rates on certain small loans at 36 percent, was also discussed, with several Democrats stressing that the cap may negatively affect credit availability to some consumers.

    Federal Issues FDIC Supervision Nonbank Supervision Bank Supervision Valid When Made OCC Interest Rate Usury House Financial Services Committee Madden Predatory Lending U.S. House

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  • New York says creditors prohibited from obtaining confessions of judgments against out-of-state borrowers

    State Issues

    On August 30, the New York governor signed S 6395, which prohibits creditors from obtaining confessions of judgments through the New York court system against individuals and businesses located outside of the state in order to seize borrower assets. According to a press release issued by Governor Cuomo, prior to the enactment of S 6395, creditors were able to “freeze and seize a borrower’s assets by obtaining a judgment entered in a court far from where the contested agreement was executed, making it difficult for a borrower to legally contest the unfair penalty.” Under S 6395, an entry of judgment may only be filed in “the county where the defendant’s affidavit stated that the defendant resided when it was executed or where the defendant resided at the time of filing.” For non-natural persons, the county of residence is where it has a place of business. Notably, government agencies engaged in enforcing civil or criminal law against a person or a non-natural person, are exempt from the bill’s measures and may file an affidavit in any county within the state. S 6395 is effective immediately.

    State Issues State Legislation Small Business Lending Predatory Lending Merchant Cash Advance

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  • DOJ announces settlements to resolve predatory loan modification allegations

    Federal Issues

    On July 30, the DOJ announced several settlements with a group of California-based mortgage loan modification service providers to resolve allegations that the defendants violated the Fair Housing Act by targeting Hispanic homeowners for predatory mortgage loan modification services and interfering with the homeowners’ ability to keep their homes. According to the DOJ, the defendants persuaded as many as 400 Hispanic homeowners to pay approximately $5,000 for audits advertised as essential for loan modifications, but in actuality had no impact on the modification process and provided no financial benefit. Additionally, the DOJ claimed that the defendants “encouraged their clients to stop making mortgage payments and instructed them to cease contact with their lenders,” which led to many homeowners losing their homes due to defaulted mortgages. The lawsuit stemmed from complaints filed with HUD by two of the defendants’ former clients, who intervened in the lawsuit, along with their attorney, Housing and Economic Rights Advocates (HERA), and members of one of the former client’s family.

    While three of the companies identified as defendants in the complaint ceased operations, the settlement agreements resolve allegations against the individuals responsible for owning and operating the now-defunct companies. Under the terms of the agreements, the individual defendants have agreed to, among other things, (i) refrain from engaging in the discriminatory conduct; and (ii) contribute more than $148,000 towards a restitution fund to reimburse fees paid to the defendants by former clients. Additionally, five of the individual defendants have agreed to pay an additional $405,699 in suspended judgments should it be determined the defendants misrepresented their current financial situations. The DOJ noted that the individual defendants have also agreed to an additional $91,650 in compensation in separate settlements reached with their former clients and HERA.

    Federal Issues DOJ Fair Lending Fair Housing Act Predatory Lending Mortgages

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  • Pension advance company settles with Virginia Attorney General over high-interest loans targeting veterans and retirees

    State Issues

    On November 15, the Virginia Attorney General announced a $51.7 million settlement with a pension advance company, its owner, and related entities (defendants) to resolve allegations concerning allegedly illegal, high-interest loans made to more than 1,000 Virginia veterans and retirees in violation of the Virginia Consumer Protection Act (VCPA). According to the Attorney General’s complaint, the defendants allegedly “disguised [the] illegal, high interest loans as ‘pension sales’ that could provide Virginia pension holders with a quick lump sum of cash,” and seemingly concentrated the sales in two Virginia areas where a large number of retired veterans and civil servants reside. Following the lawsuit, the defendants shut down lending operations in Virginia and around the country. Under a permanent injunction and final judgment, the court—which declared the defendants’ agreements to be “usurious and illegal”—ordered the defendants to: (i) provide over $20 million in borrower debt forgiveness; (ii) pay a $31.7 million civil money penalty; (iii) pay $414,473 in restitution; (iv) pay $198,000 for costs and attorneys’ fees; and (v) agree to injunctive relief to prevent further violations of the VCPA.

    State Issues State Attorney General Predatory Lending Debt Relief

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  • U.S. hits law firm with FHA violations; loan modifications discriminated against Hispanic borrowers


    On October 30, the U.S. Attorney for the Middle District of Florida filed a lawsuit against a Florida legal services provider and two of its officers (defendants) for allegedly violating the Fair Housing Act by “intentionally discriminating against Hispanic homeowners by targeting them with a predatory mortgage loan modification and foreclosure rescue services scheme.” Specifically, the complaint alleges that the defendants, among other things, (i) targeted borrowers through the use of Spanish-language advertisements that allegedly promised to cut mortgage payments in half; (ii) promised payments would be lowered “in a specific timeframe in exchange for thousands of dollars of upfront fees and continuing monthly fees of as much as $550,” without delivering the promised loan modifications; (iii) instructed borrowers to stop making monthly mortgage payments and to stop communicating with their lenders; and (iv) had borrowers sign English-language contracts while only translating the provisions regarding payment. The complaint seeks to enjoin the defendants from participating in discriminatory activities on the basis of national origin, and requests monetary damages and civil penalties.

    Lending Predatory Lending FHA DOJ Mortgages

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  • New York City Department of Consumer Affairs sues for-profit college for deceptive and predatory lending practices


    On October 19, New York City Department of Consumer Affairs (DCA) announced that it filed suit in New York County Supreme Court against a for-profit college alleging deceptive and predatory lending practices that violate NYC Consumer Protection Law and local debt collection rules. The DCA alleges that college recruiters engaged in deceptive practices such as (i) masquerading federal loan applications as scholarships; (ii) steering students towards college loans and referring to them as “payment plans”; and (iii) deceiving students about institutional grants by failing to disclose that they require students to obtain the maximum amount of federal loans available before a grant can be awarded. DCA also alleges that the for-profit college violated debt collection laws by concealing its identity on invoices when collecting debt, and seeking payments from graduates for debts not owed.

    Lending State Issues Student Lending Predatory Lending Debt Collection

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  • VA issues policy guidance on VA refinance loans in response to the Economic Growth, Regulatory Relief and Consumer Protection Act

    Federal Issues

    On May 25, the Department of Veterans Affairs (VA) issued Circular 26-18-13 discussing the impact of “The Protecting Veterans from Predatory Lending Act of 2018” (the Act), which was included in the recently enacted bipartisan regulatory relief bill, Economic Growth, Regulatory Relief and Consumer Protection Act, S. 2155, previously covered by InfoBytes here. The Act addresses “loan churning” of VA-guaranteed refinance loans and sets out new requirements for VA eligibility. As of May 25, a lender (broker or agent included), a servicer, or issuer of an Interest Rate Reduction Refinance Loan (IRRRL) must, among other things:

    • Recoup Fees. Certify that certain fees and costs of the loan will be recouped on or before 36 months after the loan note date;
    • Establish a Net Tangible Benefit. Establish that when the previous loan had a fixed interest rate (i) the new fixed interest rate is at least 0.5 percent lower or (ii) if the new loan has an adjustable rate, that the rate is at least 2 percent lower than the previous loan. In each instance, the lower rate cannot be produced solely from discount points except in certain circumstances; and
    • Apply a Seasoning Period. Follow a seasoning requirement for all VA-guaranteed loans. A loan cannot be refinanced by an IRRRL or a VA cash-out refinance (if the new principle amount is less than the loan being refinanced) until (i) 210 days after the date of the first payment made on the loan and (ii) the date of the sixth monthly payment is made on the loan.

    The circular is rescinded on January 1, 2020.

    Federal Issues Department of Veterans Affairs Refinance IRRRL S. 2155 Bank Regulatory Predatory Lending EGRRCPA

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  • NYDFS announces investigation into rent-to-own as predatory lending


    On April 16, the New York Department of Financial Services (NYDFS) announced an investigation into whether rent-to-own and land installment home purchase agreements constitute unlicensed, predatory mortgage lending in New York. NYDFS acknowledged the ongoing investigation while releasing a consumer alert to New Yorkers about rent-to-own and land installment contract pitfalls. The alert notifies consumers that the agreements may violate certain New York laws and regulations governing fair lending, mortgage protection, interest rates, habitability, and property condition. NYDFS encourages consumers to consider a traditional leasing option and be aware of the state of disrepair the property may be in before signing the agreement.

    Lending State Issues NYDFS Rent-to-Own Predatory Lending Fair Lending Mortgages

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