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Financial Services Law Insights and Observations

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  • NYDFS proposes to streamline coin listings for licensed virtual currency firms

    State Issues

    On December 11, NYDFS issued proposed guidance to create two “coin adoption or listing options” for virtual currency licensees. According to NYDFS, these proposed guidelines are intended to provide “regulatory clarity and efficiency, and to ensure that [NYDFS’s] approach to regulating virtual currency businesses reflects the realities of an evolving market.” Recognizing that its virtual coin licensees “have asked to list new virtual currencies . . .  in addition to those included in their initial applications to [NYDFS],” NYDFS proposes, among other things, to provide a list of coins on an NYDFS web page that have been approved for permitted use. Virtual currency licensees may choose to list any of these coins as long as the licensee provides notice to the Department and the listed coins are not modified, divided, or changed after being listed on the NYDFS webpage. The proposal would also allow licensees to create their own  “company coin-listing policy” tailored to their specific business models and risk profiles that, if approved by NYDFS would permit a licensee to self-certify the listing or adoption of new coins without prior approval. According to NYDFS Superintendent Linda Lacewell, the proposal is “designed to make it easier for those who have obtained a New York license to periodically add new coins to their existing products.” The deadline for submitting comments on the proposed guidance is January 27, 2020.

    State Issues NYDFS Virtual Currency Fintech

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  • Connecticut Supreme Court reverses in favor of consumer in unfair trade practices appeal

    Courts

    On November 26, the Connecticut Supreme Court reversed a trial court’s ruling on a mortgage servicer’s motion to dismiss a Connecticut Unfair Trade Practices Act (CUTPA) action brought by a consumer. The trial court had ruled in favor of the servicer, stating, among other things, that ruling in the consumer’s favor might dissuade servicers from engaging in loan modifications for fear of negligence claims and additional liability. According to the Connecticut Supreme Court opinion, the consumer defaulted on his mortgage and his servicer instituted foreclosure proceedings, at which time the consumer requested a loan modification under the HAMP program. The complaint claims that over the next five years, the servicer mishandled the loan modification process, failed to respond to the consumer’s inquiries about the modification status, and repeatedly requested applications and additional documents from the consumer.

    Based on the facts stated in the complaint, the consumer claims that when the servicer finally extended a HAMP modification (which capitalized accrued but unpaid interest, default fees, and the servicer’s attorney fees), the consumer filed a complaint against the servicer for violation of CUTPA, alleging that the servicer “committed unfair or deceptive acts in the conduct of trade or commerce by failing to exercise reasonable diligence in reviewing and processing the [consumer’s] loan modification applications.” Additionally, the consumer alleged negligence, claiming that the servicer “owed the [consumer] a duty of care arising out of the servicing standards imposed by RESPA, the 2011 federal consent order, the national mortgage settlement, and the Connecticut foreclosure mediation statutes.”

    The Connecticut Supreme Court reversed the lower court’s ruling striking the consumer’s CUTPA claim on a motion to strike (similar to a federal motion to dismiss), stating that, “viewed in the light most favorable to sustaining the complaint’s legal sufficiency, we agree with the [consumer] and conclude that these allegations describe conduct that was not merely a technical violation of these provisions or negligent or incompetent, but involved a conscious, systematic departure from known, standard business norms” and that the allegations, if true, could show that the servicer “deliberately engage[d] in a pattern of conduct intended to prevent” the consumer from getting a loan modification. However, the court agreed with the lower court regarding the negligence claim, rejecting the consumer’s claim that the servicer had a common-law duty “to use reasonable care in the review and processing of” his loan modification application.

    Courts Appellate State Issues HAMP Mortgage Servicing

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  • Michigan approves temporary authority to act as a licensed mortgage loan originator

    On December 4, the Michigan governor signed HB 5084, which, among other things, includes provisions granting temporary authority for certain mortgage loan originators (MLOs) to originate loans in the state without a state license. Specifically, HB 5084 provides that, in order to be eligible for temporary authority to operate, the individual must be employed by an entity that is licensed or registered under applicable state laws and meets the following additional criteria: has no previous MLO application denials or MLO license suspensions or revocations in any state; has not been subject to, or served with, a cease and desist order in any state; has not been convicted of, or pled guilty or no contest to, a disqualifying crime; has submitted the required application and fee and meets the applicable surety bond requirement; was registered in the NMLS as a loan originator during the one-year period immediately preceding the date on which the applicant submitted the required information; and has not been subject to a prohibition order pertaining to any of the financial licensing acts. Individuals who were licensed as mortgage loan originators in another state the individual is eligible for temporary authority to act as a mortgage loan originator if the individual meets the criteria above and was licensed in another state during the 30 days immediately prior to submitting the required application information in Michigan. 

    Beginning November 24, HB 5084 permits qualifying MLO applicants to have temporary authority to act as a mortgage loan originator while their applications are pending for licensure for up to 120 days, or upon the withdrawal, denial, notice of intent to deny, or approval of the licensing application, whichever is sooner.

    Licensing State Legislation State Issues Mortgage Origination

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  • Wisconsin to provide temporary authority for MLOs

    On November 26, the Wisconsin governor signed SB 457, which, among other things, includes provisions granting temporary authority for certain mortgage loan originators (MLOs) to originate loans in the state while their license applications are pending. Specifically, SB 457 provides that in order to be eligible for temporary authority to operate, the individual must have been a registered MLO prior to becoming employed by a mortgage banker or mortgage broker, and must meet the following additional criteria: (i) no previous MLO application denials; (ii) no MLO license suspensions or revocations in any governmental jurisdiction; (iii) has not been “subject to, or served with, a cease and desist order in any governmental jurisdiction or by the director or the [CFPB]”; (iv) has not been convicted of a disqualifying crime; and (v) must be registered with the NMLS as a loan originator for a one-year period immediately preceding the date on which the applicant furnished the required information. For individuals who were licensed MLOs in another state, and are now employed by a mortgage banker or mortgage broker in Wisconsin, the individual is eligible for temporary authority to operate if the individual met criteria (i) through (iv) listed above and was licensed in another state during the 30 days prior to submitting the required application information in Wisconsin. Beginning November 28, SB 457 permits qualifying MLO applicants to engage in mortgage transactions while their applications are pending for licensure for up to 120 days, or upon the withdrawal, denial, or approval of the licensing application, whichever is sooner.

    Licensing State Legislation State Issues Mortgage Origination

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  • Appeals Court affirms enforceability of arbitration agreement

    Courts

    On November 27, the Superior Court of New Jersey, Appellate Division, affirmed an order requiring arbitration between a consumer and the buyer of the consumer’s debt (debt collector) in a lawsuit filed by the consumer claiming that the debt collector was not licensed to collect debts in New Jersey. According to the decision, the consumer had opened a credit card account with a bank, which included an arbitration agreement, then defaulted on the account. The debt collector then bought the debt and collected the consumer’s debt. The consumer subsequently sued the debt collector for its purported unlicensed collection of debts, but the trial court dismissed the complaint and compelled arbitration between the parties. The consumer appealed, arguing in part that the trial court erred by allowing an arbitrator to decide the validity of the assignment to the debt collector, and, therefore, the enforceability of the arbitration agreement. The appellate division court sided with the trial court that the arbitration clause “clearly and expressly stated claims relating to the ‘application, enforceability or interpretation of this Agreement, including this arbitration provision’ are subject to arbitration.” Moreover, the court concurred that the agreement did not violate the state’s plain language statute. However, the appellate division remanded the case to the trial court for issuance of an order to stay—rather than dismiss—the matter pending arbitration.

    Courts Appellate Debt Collection Arbitration State Issues Debt Buyer Class Action

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  • New York considers privacy legislation broader than the CCPA

    Privacy, Cyber Risk & Data Security

    On November 22, the New York Senate’s Committee on Consumer Protection and Committee on Internet and Technology held a joint hearing titled, “Consumer Data and Privacy on Online Platforms,” which discussed the proposed New York Privacy Act, SB S5642 (the Act). The Act was introduced in May and seeks to regulate the storage, use, disclosure, and sale of consumer personal data by entities that conduct business in New York State or produce products or services that are intentionally targeted to residents of New York State. The Act contains different provisions than the California Consumer Privacy Act (CCPA), which is set to take effect on January 1, 2020 (visit here for InfoBytes coverage on the CCPA). Highlights of the Act include:

    • Fiduciary Duty. Most notably, the Act requires that legal entities “shall act in the best interests of the consumer, without regard to the interests of the entity, controller or data broker, in a manner expected by a reasonable consumer under the circumstances.” Specifically, the Act states that personal data of consumers “shall not be used, processed or transferred to a third party, unless the consumer provides express and documented consent.” The Act imposes a duty of care on every legal entity, or affiliate of a legal entity, with respect to securing consumer personal data against privacy risk and requires prompt disclosure of any unauthorized access. Moreover, the Act requires that legal entities enter into a contract with third parties imposing the same duty of care for consumer personal data prior disclosing, selling, or sharing the data with that party.
    • Consumer Rights. The Act requires covered entities to provide consumers notice of their rights under the Act and provide consumers with the opportunity to opt-in or opt-out of the “processing of their personal data” using a method where the consumer must clearly select and indicate their consent or denial. Upon request, and without undue delay, covered entities are required to correct inaccurate personal data or delete personal data.
    • Transparency. The Act requires covered entities to make a “clear, meaningful privacy notice” that is “in a form that is reasonably accessible to consumers,” which should include: the categories of personal data to be collected; the purpose for which the data is used and disclosed to third parties; the rights of the consumer under the Act; the categories of data shared with third parties; and the names of third parties with whom the entity shares data. If the entity sells personal data or processes data for direct marketing purposes, it must disclose the processing, as well as the manner in which a consumer may object to the processing.
    • Enforcement. The Act defines violations as an unfair or deceptive act in trade or commerce, as well as, an unfair method of competition. The Act allows for the attorney general to bring an action for violations and also prescribes a private right of action on any harmed individual. Covered entities are subject to injunction and liable for damages and civil penalties.

    According to reports, state lawmakers at the November hearing indicated that federal requirements would be “the best scenario,” but in the absence of Congressional movement in the area, one state senator noted that the state legislators must “assure [their] constituents that [the state legislature is] doing everything possible to protect their privacy.” Witnesses expressed concern that the Act would be placing too many new requirements on businesses that differ from what other states have already enacted, and encouraged more consistent baseline standards for compliance instead of a patchwork approach. Some witnesses expressed specific concern with the opt-in requirement for the collection and use of consumer data, noting that waiting on consumers to opt-in, as opposed to just opting-out, makes compliance difficult to administer. Lastly, many witnesses were displeased about the broad private right of action in the Act, but consumer groups praised the provision, noting that the state attorney general does not have the resources to regulate and enforce against all the data collection and sharing in the state.

    Privacy/Cyber Risk & Data Security CCPA State Legislation State Issues Enforcement State Attorney General

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  • New York blocks use of social networks in credit decisions

    State Issues

    On November 25, the Governor of New York signed S2302, a measure which prohibits entities that are “licensed lenders” in New York, as well as consumer reporting agencies (CRAs), from including a consumer’s social network information in credit decisions. S2302 amends New York’s general business law and the banking law to prohibit licensed lenders and CRAs from considering “the credit worthiness, credit standing, or credit capacity of members of the consumer’s social network” or “the average credit worthiness, credit standing, or credit capacity of members of the consumer’s social network or any group score that is not the [consumer’s] own credit” information. Specifically, the amendment prohibits licensed lenders and CRAs from collecting, evaluating, reporting, or maintaining the information in a file. Additionally, the consumer’s internet viewing history also may not be factored into the licensed lender’s or agency’s “credit scoring formulas.”

    State Issues Consumer Finance Lending State Legislation Credit Scores

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  • Georgia proposes temporary authority for MLOs

    On November 18, the Georgia Department of Banking and Finance issued a notice of proposed rulemaking, which would require several state specific requirements for mortgage loan originators (MLO) seeking to utilize temporary authority (Temporary Authority) in the state of Georgia pursuant to Section 106 of the Economic Growth, Regulatory Relief, and Consumer Protection Act—which is set to take effect November 24. Specifically, the proposed rule outlines the following additional requirements:

    • Disclosure requirements. Mortgage companies are required to provide additional written disclosures to consumers showing that the MLO is not licensed and may ultimately not be granted a license. This written disclosure shall be “made no later than the date the consumer signs an application or any disclosure, whichever event occurs first,” and must be maintained by the company. Additionally, the disclosure must state that the Department “may take administrative action against the [MLO] that may prevent such individual from acting as a [MLO]” before a loan is closed. The language in the rule must appear on the loan documentation in 10-point bold-face type.
    • Education requirements. Any MLO who qualifies to utilize Temporary Authority must submit proof to the Department that they have enrolled in a class to satisfy education requirements and have registered to take the national MLO test. Both notifications must be submitted within 30 days of the MLO’s application submission.
    • Advertising requirements. All advertisements must “clearly and conspicuously” indicate that MLOs operating under Temporary Authority are currently unlicensed and have pending applications with the Department. Moreover, the advertisement must state that the “Department may grant or deny the license application.”
    • Transaction journal requirements. Mortgage companies must maintain a journal of mortgage loan transactions that clearly identifies when any MLO utilizes Temporary Authority at any point in the application or loan process. The transaction journal should also notate the outcome of the MLO’s license application as either “approved, withdrawn, or denied.”
    • Signature requirements. Any MLO operating under temporary authority must indicate “TAO,” (temporary authority to operate) or use a substantially similar designation next to any signature on a loan document, including those that relate to the negotiation of terms or the offering of a loan.
    • Administrative fines. Mortgage companies who employ a person who does not satisfy the federal Temporary Authority requirements but engages in licensable MLO activities under Georgia law will be subject to a fine of $1,000 per occurrence and the mortgage companies’ license shall be subject to suspension or revocation.

    Comments on the proposed rule must be received by December 18.

    Visit here for additional guidance on MLO temporary authority from APPROVED.

    Licensing State Regulators Mortgage Origination MLO State Issues EGRRCPA

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  • FDIC creates advisory committee for state regulators

    Federal Issues

    On November 19, the FDIC announced a new advisory committee between the agency and state regulators to discuss issues related to the regulation and supervision of state-chartered financial institutions. The committee, titled the Advisory Committee of State Regulators (ACSR), will explore topics such as (i) safety and soundness; (ii) consumer protection issues; (iii) the creation of new banks; and (iv) financial system risks, including cyberattacks or money laundering. Members of the ACSR will be composed of state financial regulators, as well as other individuals “with expertise in the regulation of state-chartered financial institutions.”

    Federal Issues State Issues State Regulators Supervision

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  • New York AG investigates housing discrimination on Long Island

    State Issues

    On November 19, the New York attorney general’s office announced the launch of a Civil Rights Bureau investigation into allegations that Long Island real estate agents have engaged in discriminatory practices. The announcement follows a newspaper’s recent publication of findings based on a three-year examination of residential brokering firms, where, according to the report, several agents allegedly (i) “steered undercover testers to neighborhoods whose composition matched their own race or ethnicity”; (ii) directed white testers to neighborhoods with the highest white representations, whereas minority testers were sent to more integrated areas; and (iii) subjected minority testers to financial bars that were not imposed on white testers, such as requiring mortgage preapproval in order to view properties. The AGs office encourages Long Island residents to report any instances of housing discrimination. 

    State Issues State Attorney General Fair Lending

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