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  • Trustee allowed to file amended complaint concerning RMBS breach of contract claims

    Courts

    On April 25, the New York Supreme Court, Appellate Division held that a trustee for two residential mortgage-backed securities (RMBS) trusts is entitled to file an amended complaint concerning “express breach of contract claims.” The issue arose from whether the sponsor breached its agreements with the trustee when it allegedly failed to disclose breaches of representations and warranties discovered during a due diligence review of the RMBS trusts after the transactions closed. According to the opinion, the sponsor claimed that no fraud or misrepresentations had occurred with respect to the loans, but it was later discovered that this was not true. However, the sponsor still moved to dismiss, arguing it was not bound under the mortgage purchase agreements to disclose any breach of the representations and warranties. The trial court dismissed the claims and blocked the trustee from filing an amended complaint after it determined the sponsor was not obligated to relay the loans’ issues after they were discovered.

    On review, the appeals court found that the relevant contractual language, requiring the sponsor, upon discovery of any breach to give written notice of the breach to itself, was ambiguous, but opined that “[a]llowing the clause to remain as written would render this provision meaningless”—an important fact since “courts should avoid interpretations that would render contractual language mere surplusage.” The trustee claimed that because the sponsor is included on the list of parties required to provide notice, there must be another unnamed party, other than the sponsor, available to receive notice, whereas the sponsor argued that its inclusion on the list of parties required to give notice was “due to ‘alleged drafting imperfections’” since it is the party that is entitled to receive such notices. Because both parties presented “reasonable competing interpretations,” the appeals court noted, additional proceedings are necessary.

    Courts Appellate State Issues RMBS Securities

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  • NYDFS fintech charter lawsuit survives challenge

    Courts

    On May 2, the U.S. District Court for the Southern District of New York denied the OCC’s motion to dismiss a complaint filed by NYDFS arguing that the agency’s decision to allow fintech companies to apply for a Special Purpose National Bank Charter (SPNB) is a move that will destabilize financial markets more effectively regulated by the state. (See previous InfoBytes coverage here.) The court, however, stated that because the OCC failed to rebut NYDFS’s claims that the proposed national fintech charter posed a threat to the state’s ability to establish its own laws and regulations, the challenge “is ripe for adjudication.” Specifically, NYDFS alleged that granting a national charter to fintech firms would limit its ability to regulate non-depository institutions and could potentially lead to a loss in revenue derived from assessments levied against state licensed institutions. The court rejected the OCC’s preemption arguments, writing that the “threats to New York's sovereignty are so clear that the OCC does not even mention, let alone contest, the state's interests. Instead, OCC focuses exclusively on constitutional and prudential ripeness.” The court further dismissed the OCC’s ripeness argument that it has yet to receive, review, or approve a SPNB application, and referred to NYDFS’ allegations that the OCC has “invited fintech companies . . . to discuss SPNB charters,” which potentially demonstrates “at least some demand for, and interest in, such charters.” While the court concedes that the potential for fintech companies to “flout” New York's laws would only occur once a fintech company has applied and been granted a SPNB charter, “those steps do not stymie [NYDFS’s] standing.”

    In addressing NYDFS’s Administrative Procedures Act claim, the court found, among other things, that engaging in the “business of banking” under the National Bank Act (NBA) “unambiguously requires receiving deposits as an aspect of the business.” Furthermore, the court concluded that “absent a statutory provision to the contrary, only depository institutions are eligible to receive [a SPNB] from [the] OCC.” However, the court dismissed NYDFS’s claims that a SPNB charter conflicts with state law in violation of the Tenth Amendment of the U.S. Constitution. According to the court, while NYDFS has standing to raise a Tenth Amendment claim, it has failed to state such a claim “because federal law preempts state law only when ‘Congress has clearly expressed its intent,’” and in this instance, “the operative question is not whether the federal government has the power to take the action challenged in this case, but whether Congress has, in fact exercised that power.”

    Courts Fintech NYDFS OCC Fintech Charter National Bank Act State Issues Preemption

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  • Oklahoma prohibits credit, debit card surcharges

    State Issues

    On April 30, the Oklahoma governor signed HB 1425, which, among other things, bans surcharges on credit or debit card transactions. The ban prohibits sellers from increasing the price of any sales transaction for buyers who pay with a credit or debit card instead of a check, cash, or similar means. HB 1425 takes effect November 1.

    State Issues State Legislation Credit Cards Fees

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  • New Jersey approves mortgage lending bill package

    State Issues

    On April 29, the New Jersey governor approved several bills related to mortgage lending in the state. According to a press release issued by the governor, the package of nine bills addresses the state’s foreclosure crisis and includes the following:

    • A 4997, known as the Mortgage Services Licensing Act, requires persons who act as mortgage servicers—either directly or indirectly—to obtain a license from the New Jersey Commissioner of Banking and Insurance for each office where business is conducted. The Act provides certain licensing exemptions, including federally insured banks and credit unions and their wholly-owned subsidiaries, those already licensed under the state’s Residential Mortgage Lending Act (the Act) who meet certain criteria, and the New Jersey Housing and Mortgage Finance Agency. However, the Act stipulates that sections 9 – 12, which discuss, among other things, record-keeping requirements, late fee restrictions, and required disclosures, apply to all persons, including exempt persons, acting as mortgage servicers in the state. Among other provisions, the Act (i) outlines licensing application requirements, procedures, and expiration terms; (ii) requires licensed mortgage servicers to file annual reports about loan servicing in the state; (iii) stipulates that licenses are non-transferable; (iv) mandates mortgage servicers to file a surety bond, fidelity bond, and evidence of coverage with the Commissioner; (v) requires compliance with all applicable federal laws including RESPA and TILA; (vi) requires mortgage servicers to keep a current schedule of service-related activity fees; and (vii) prohibits mortgage servicers from engaging in unfair or deceptive practices in connection with loan servicing. Moreover, the Act grants the Commission with supervision, investigation, and examination authority. The Act takes effect in 90 days.
    • A 5001 “reduces the statute of limitations in residential mortgage foreclosures from 20 years to six years from the date on which the debtor defaulted, in situations in which the date of default is used as the method to determine when the statute of limitations has expired.” A 5001 takes effect immediately and applies to all residential mortgages executed on or after the effective date.
    • S 3416 states that provisions of the New Jersey Residential Mortgage Lending Act now apply to certain out-of-state persons involved in residential mortgage lending in the state “provided they are otherwise required to be licensed pursuant to the provisions of the [A]ct. . . .” S 3416 takes effect immediately.
    • S 3411, among other things, (i) requires a notice of intention to foreclose on a residential mortgage to be filed within 180 days prior to commencing foreclosure, stating that if a foreclosure proceeding has not yet commenced, “the lender shall send a new written notice at least 30 days, but not more than 180 days, in advance of that action”; and (ii) limits the number of permitted reinstatements of dismissed mortgage foreclosure actions to three, with certain exceptions. S 3411 takes effect August 1, which is the first day of the fourth month following enactment.

    State Issues State Legislation Licensing Mortgages Foreclosure Consumer Finance

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  • Washington state amends debt collection laws

    State Issues

    On April 30, the Washington state governor signed HB 1531 and HB 1066, which amend certain state debt collection laws. HB 1531 covers medical debt and among other things, outlines certain requirements for medical debt collection notices, including providing information regarding the medical creditor, the date(s) of service, and the health care services provided. The notice must also include the principal amount of the debt incurred, interests and fees, and the amount of any payments already received. HB 1531 also prohibits a collector from reporting any adverse information regarding the medical debt to credit reporting agencies until at least 180 days after the obligation with [was?] received by the collector and limits prejudgment interest to nine percent. Additionally, HB 1066 prevents a debt collector from serving a debtor with a court summons unless the summons and complaint are first filed with the appropriate court and bear a case number assigned by the court. The amendments both take effect July 28.

    State Issues Debt Collection State Legislation

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  • New York charges virtual currency operators with fraud

    State Issues

    On April 25, the New York Attorney General announced that operators of a virtual currency trading platform and “tether” virtual currency issuer, along with their affiliated entities, are enjoined from engaging in activities that may have defrauded investors trading in cryptocurrency. The AG’s investigation found that the operators allegedly “engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds.” Under the terms of the court order, the operators and companies must, among other things, (i) immediately end the further dissipation of U.S. dollar assets that back “tether” tokens; (ii) are prohibited from making any distributions to executives, employees, or agents, investors, or associates from “funds that that have been loaned, extended, or pledged, or otherwise taken from the U.S. dollar reserves held by the operator”; and (iii) are prohibited from destroying or deleting potentially relevant documents and communications.

    State Issues State Attorney General Fintech Cryptocurrency

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  • District Court: Usury claim not preempted by National Bank Act

    Courts

    On April 24, the U.S. District Court for the Western District of Pennsylvania denied in part and granted in part a national bank’s motion to dismiss a complaint alleging violations of, among other things, the Pennsylvania Loan Interest and Protection Act (“Act 6”). The allegations stem from the bank’s servicing of the plaintiffs’ mortgage. Pursuant to a settlement agreement reached between the parties in a separate 2012 lawsuit over alleged misrepresentations made by the bank concerning whether the plaintiffs were in arrears in their mortgage and escrow payments, the mortgage principal was reset. The plaintiffs asserted that although they made timely monthly payments, a 2014 mortgage statement reflected an escrow shortage, including unpaid late charges and outstanding advance/fees. Arguing that because the loan servicers refused their allegedly timely payments, which increased the principal balance, the plaintiffs claimed that the bank breached the terms of the settlement agreement by adding the unauthorized charges without providing notice. However, the bank argued—and the court concurred—that the breach of contract claim was outside the applicable statute of limitations. The plaintiffs further alleged that the bank charged an interest rate that exceed the rate permitted under Act 6, and that the loan servicer charged the plaintiffs “undisclosed, excessive, and retaliatory attorney’s fees ‘from at least one if not two prior lawsuits,’ in violation of the [s]ettlement [a]greement and Act 6,” along with other “unwarranted charges.”

    Concerning the bank’s motion to dismiss the Act 6 usurious interest rate claims based upon preemption, the court referred to the loan’s origination and rejected the bank’s argument that the usury claim was preempted by the National Bank Act, explaining that the homeowners’ mortgage was originated by a non-national bank even though a national bank was later assigned the note and mortgage. Additionally, the court rejected the bank’s argument that the Act 6 claim of unlawful attorney fees was barred by the applicable four-year statute of limitations. According to the court, “an Act 6 claim for excessive fees accrues upon payment of said fee; it does not accrue upon charge of the fee or upon the obligor’s knowledge of the fee.” However, the court determined that the plaintiffs failed to adequately allege that they made “the requisite unlawful payments of usurious interest or unlawful attorney’s fees” required to state valid Act 6 claims. As such, the court dismissed the Act 6 claims without prejudice.

    Courts State Issues Usury Mortgages National Bank Act Debt Collection

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  • Washington state recognizes distributed ledger technology

    State Issues

    On April 26, the Washington state governor signed SB 5638, which recognizes the validity of distributed ledger technology. Intending to expand the scope of the existing federal ESIGN Act, the bill adds a new chapter to the Revised Code of Washington, defining distributed ledger technology as “any distributed ledger protocol and supporting infrastructure, including blockchain, that uses a distributed, decentralized, shared, and replicated ledger.” The bill prohibits an electronic record from being denied “legal effect, validity, or enforceability solely because it is generated or stored using distributed ledger technology.” The bill is effective July 28.

    State Issues State Legislation Blockchain Virtual Currency Fintech

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  • Georgia exempts certain retailers from mortgage licensing requirements

    State Issues

    On April 18, the Georgia governor signed HB 212, which amends the Official Code of Georgia Annotated relating to the licensing of mortgage lenders and mortgage brokers. Under the Act, the following persons, who meet certain requirements, are exempt from state licensing requirements: “retailers and retail brokers of manufactured homes, mobile homes, or residential industrialized buildings.” The Act also revises the definition of a “mortgage broker” to remove the aforementioned categories from the term, and further provides that a “mortgage broker” does not include employees of exempt persons who satisfy specific requirements. The Act takes effect July 1.

    State Issues State Legislation Mortgages Licensing

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  • NYDFS creates Consumer Protection and Financial Enforcement Division

    State Issues

    On April 29, NYDFS announced its newly created Consumer Protection and Financial Enforcement Division, led by Katherine Lemire as Executive Deputy Superintendent. The new office combines the Enforcement and Financial Frauds division with the Consumer Protection division and is responsible for ensuring compliance, fighting consumer fraud, and assisting NYDFS with the enforcement of the state’s Banking, Insurance and Financial Services laws. The office will have a particular investigative focus on the response to cybersecurity events and the creation of supervisory, regulatory and enforcement policy in the area of financial crimes. Prior to her new role, Lemire served as Assistant United States Attorney in the Southern District of New York where she investigated complex federal crimes, and as a prosecutor in the Manhattan District Attorney’s Office.

    State Issues NYDFS Consumer Finance Consumer Protection Enforcement

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