InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
DFPI takes action against student debt-relief company
On August 9, the California Department of Financial Protection and Innovation (DFPI) issued a consent order with a student loan debt relief company, resolving allegations that the company violated the California Consumer Financial Protection Law (CCFPL) by collecting illegal advance fees prohibited under the federal TSR. According to DFPI, the announcement follows a “wider crackdown” initiated in February against student loan debt-relief companies in violation of the CCFPL and the Student Loan Servicing Act (covered by InfoBytes here). The company allegedly advertised promises of reducing student debt in exchange for an initial payment as high as $899 and an ongoing monthly fee of $39. DFPI alleges that over 1,000 California student loan borrowers signed up and were charged illegal up-front fees prohibited under the federal telemarketing law. The consent order requires the company to refund California student loan borrowers the approximate $870,000 it collected in fees and to pay a $500,000 penalty to DFPI. The company also agreed to cease its illegal conduct, cancel all unlawful contracts with consumers, and refund consumers within 60 days.
DFPI releases report on CRMLA
On August 2, the California Department of Financial Protection and Innovation released a report examining residential mortgage lending, rates, consumer complaints, foreclosures, and other data elements during 2020. The DFPI compiled data submitted by licensed non-bank mortgage lenders under the California Residential Mortgage Lending Act (CRMLA). According to the report, “nonbank residential mortgage loans doubled from 2019 to 2020 as more Californians refinanced or obtained new loans in response to lower interest rates despite the economic downturn that resulted from the COVID-19 pandemic.” The report also noted that there was an approximate 68 percent decrease in foreclosures in response to Covid-19 moratoriums meant to protect consumers and an almost 19 percent decline in complaints. Other key findings include that (i) the number of mortgage loans originated increased by 100.5 percent; (ii) the number of loans brokered increased by 52.7 percent; and (iii) the aggregate average amount of loans serviced by licensees each month increased by 12.4 percent compared to 2019.
DFPI to start accepting debt collector licensing applications on September 1
On July 12, the Nationwide Multistate Licensing System & Registry (NMLS) published an announcement reminding debt collectors that all persons must apply for a license through the California Department of Financial Protection and Innovation (DFPI) by December 31, 2021. As previously covered by InfoBytes, last September, California enacted the “Debt Collection Licensing Act” (the Act), which requires a person engaging in the business of debt collecting in the state, as defined by the Act, to be licensed and provides for the regulation and oversight of debt collectors by DFPI. Under the Act, debt collection licenses will be required starting January 1, 2022; however, debt collectors who submit applications before January 1, 2022 will be allowed to operate while their applications are pending. However, a debt collector that submits an application after December 31 must wait for DFPI to issue a license before it can operate in the state. All required application materials must be submitted through NMLS, and NMLS reminded applicants that fingerprints must also be submitted to the California Department of Justice. The application will be available on NMLS beginning September 1.
Find continuing InfoBytes coverage on DFPI’s debt collector licensing requirements here.
DFPI reports significant decline in payday lending during pandemic
On July 22, DFPI reported that California payday lenders made fewer than 6.1 million loans during the Covid-19 pandemic—a 40 percent decline from 2019. Key findings in the 2020 Annual Report of Payday Lending Activity Under the California Deferred Deposit Transaction Law, include: (i) nearly 61.8 percent of licensees reported serving consumers who received government assistance; (ii) borrowers who take out subsequent loans accounted for 69 percent of payday loans in 2020; (iii) licensees collected $250.8 million in payday loan fees, of which 68 percent came from borrowers who made at least seven transactions during the year; (iii) 49 percent of borrowers had average annual incomes of $30,000 or less, and 30 percent had average annual incomes of $20,000 or less; (iv) online payday loans made up one-third of all payday loans (41 percent of borrowers took out payday loans over the internet); and (v) cash disbursement continued to decrease in 2020, while other forms of disbursement, such as wire transfers, bank cards, and debit cards increased. DFPI also noted that during this time period the number of payday loan borrowers referred by lead generators declined by 69 percent, and that the number of licensed payday lending locations also dropped by 27.7 percent. DFPI acting Commissioner Christopher S. Shultz commented that the decrease in payday loans during the pandemic may be attributable to several factors, “such as stimulus checks, loan forbearances, and growth in alternative financing options,” adding that DFPI continues to closely monitor financial products marketed to consumer in desperate financial need.
DFPI issues NPRM on debt collector licensing requirements
On June 23, the California Department of Financial Protection and Innovation (DFPI) issued a notice of proposed rulemaking (NPRM) to incorporate changes to its debt collection license requirements and application. As previously covered by InfoBytes, in 2020, California enacted the “Debt Collection Licensing Act” (the Act), which requires a person engaging in the business of debt collecting in the state, as defined by the Act, to be licensed and provides for the regulation and oversight of debt collectors by DFPI. In April, DFPI issued a NPRM to adopt new requirements for debt collectors seeking to obtain a license to operate in the state (covered by InfoBytes here).
Among other things, the most recent NPRM seeks to:
- Revise the definition of “applicant” to clarify that an affiliate who is not applying for a license is not an applicant.
- Include language requirements for documents filed with DFPI.
- Clarify the requirements and appointment process of DFPI as the agent for service of process.
- Eliminate the requirement that an applicant must file a copy of the California Department of Justice Request for Live Scan Service form for each individual with the Nationwide Multistate Licensing System & Registry (NMLS) instead of DFPI.
- Remove requirements regarding the submission of the management chart being submitted to DFPI, the extent to which an applicant intends to utilize third parties to perform debt collection functions, and the filing with NMLS of policies and procedures.
- Refine requirements for maintaining media records.
- Refine the process of filing a change in control amendment for new officers, directors, partners, and other control people.
- Establish new branch office registration procedures.
- Eliminate requiring the submission of the total dollar amount of debt collected from consumers to determine whether a higher surety bond is required.
- Remove provisions that would permit DFPI to set a higher surety bond amount.
DFPI’s notice specifies that comments on the most recent proposed modifications are due July 12.
DFPI: Bitcoin ATM kiosk not subject to MTA licensure
Recently, California’s Department of Financial Protection and Innovation (DFPI) released three new opinion letters (see here, here, and here) covering aspects of the California Money Transmission Act (MTA) related to bitcoin automated teller machines (ATMs) and kiosks. The letters explain that the sale and purchase of bitcoin through an ATM kiosk as described by the inquiring companies is not subject to licensure under the MTA because it does not meet California’s definition of “money transmission.” In each instance, the transaction would only be between the consumer/bitcoin purchaser using the ATM kiosk and the respective company. DFPI reminded the companies, however, that its determination is limited to the activities specified in the letters and does not extend to any other activities that the companies may engage in. Moreover, the letters do not relieve the companies from any FinCEN, federal, or state regulatory obligations.
DFPI issues proposal on debt collector licensing applications
Recently, the California Department of Financial Protection and Innovation (DFPI) issued a notice of proposed rulemaking (NPRM) to adopt new requirements for debt collectors seeking to obtain a license to operate in the state. As previously covered by InfoBytes last September, California enacted the “Debt Collection Licensing Act” (the Act), which requires a person engaging in the business of debt collecting in the state, as defined by the Act, to be licensed and provides for the regulation and oversight of debt collectors by DFPI. Under the Act, debt collection licenses will be required starting January 1, 2022; however, debt collectors who submit applications before January 1, 2022 will be allowed to operate while their applications are pending.
Among other things, the NPRM seeks to:
- Include new sections for definitions of key terms, such as affiliate, debt buyer and debt collector.
- Adopt several licensing application forms and require applicants to apply for a license through the Nationwide Multistate Licensing System & Registry (NMLS).
- Provide requirements for obtaining a debt collector license, including for affiliates applying for a single license.
- Add other licensure requirements, including requiring applications to (i) identify all direct owners, executive officers, and indirect owners; (ii) include the principal place of business, in addition to all branch locations; (iii) submit background checks and fingerprints; (iv) submit to a credit report check; and (v) post surety bonds of at least $25,000.
- Specify the information required to enable the Commissioner of Financial Protection and Innovation to investigate applicants to determine whether they meet the standards for licensure.
- Outline the process for challenging information entered in NMLS, as well as the grounds for which the Commissioner may deny an application.
According to DFPI’s notice, if adopted, the final rule would take effect on or about November 19, 2021 and permit debt collectors to apply for a license prior to January 1, 2022. Additionally, DFPI announced its intention to adopt additional regulations later in 2022 to specify the requirements for maintaining books and records and set forth the amounts required for a surety bond based on a licensee’s volume of debt collection activity.
Comments on the NPRM are due by June 8.
DFPI announces settlement on deceptive educational financing practices
On April 26, the California Department of Financial Protection and Innovation (DFPI) announced a settlement with a San Francisco-based coding school, requiring removal of a bankruptcy dischargeability provision from the school’s student contracts and notification to students that this type of financing can be discharged in a bankruptcy filing. According to the consent order, a non-dischargeability provision used in the school’s installment agreements was “misleading because, contrary to the Bankruptcy Non-Dischargeability Provision, the Contract is not . . . subject to the limitations on dischargeability pursuant to . . . the United States Bankruptcy Code.” Therefore, the school violated the California Consumer Financial Protection Law, which prohibits companies from participating in practices that are unlawful, unfair, deceptive, or abusive. As part of the settlement, the school must (i) notify students that the bankruptcy dischargeability provision language is not accurate; (ii) retain a third party to review the terms of the school’s finance contract to certify that it follows the relevant regulations and laws; and (iii) go through a marketing compliance review to certify that the information is accurate and not misleading. According to DFPI Commissioner Manuel P. Alvarez, the consent order “helps ensure that future students can confidently enter into educational financing contracts without being subjected to false or misleading terms.”
DFPI Economic Equity Conference releases diversity survey results
On April 21, California’s Department of Financial Protection and Innovation (DFPI) hosted its first “Economic Equity Conference” presenting its Survey of Diversity in State Banking. The conference was designed to provide state financial leaders with strategies to enhance their “diversity, equity, and inclusion initiatives and consider their role in helping to close the racial wealth gap.” The conference featured the release of findings from a banking survey distributed to every state-chartered bank and credit union in October 2020. Some key takeaways of the report include:
- Responding financial institutions reported collecting employee and board member data on the following: (i) “60 percent collect ethnic and/or gender data;” (ii) “roughly 40 percent inquire about veteran/disability status”; (iii) “about 15 percent ask about ‘other’ categories, including marital status and age”; and (iv) “only 3 percent collect data on sexual orientation.”
- About half of responding financial institutions require diversity education or training for employees, but only 23 percent require diversity training for board members.
- Around 40 percent of financial institutions have “board-approved diversity, equity, and inclusion goals, with purposeful recruiting being the most common.”
- About 33 percent of responding institutions “track diversity, equity, and inclusion efforts, with reliance on self-assessment tools being the most common.”
- More than 75 percent of survey respondents “would like the DFPI to support diversity, equity, and inclusion efforts by providing education and training to licensees.”
DFPI reiterates “aggressive” enforcement during pandemic
On March 11, the California Department of Financial Protection and Innovation (DFPI) released a statement discussing the regulator’s expanded consumer protection efforts during the Covid-19 pandemic. Among other things, DFPI noted that it is “aggressively exercising its new authority to regulate a large group of newly covered financial services, including debt collectors, credit reporting and credit repair agencies, debt relief agencies and others,” and verifying compliance with state and federal laws protecting homeowners from “coronavirus-related foreclosures.” DFPI also stated it issued a cease-and-desist order filed against a student loan debt relief company (covered by InfoBytes here), and launched an investigation of lender efforts to evade state interest rate caps.