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Washington regulator issues guidance on financial performance representations by franchisors
On June 17, the Securities Division of the Washington Department of Financial Institutions issued a notice to inform franchisors about their obligations regarding representations about historical financial performance. In Washington, franchisors are legally prohibited from selling a franchise using a Franchise Disclosure Document (FDD) that contains an untrue statement of material fact or omits a statement of material fact. The notice indicated that if a franchisor submits FDDs that make historical financial performance representations based on data that predates the Covid-19 pandemic, the division will inquire as to whether this practice complies with federal and Washington requirements.
New York regulator issues guidance to state financial institutions regarding consumer relief
On June 17, the New York State Department of Financial Services issued guidance to state-regulated financial institutions, urging them to support consumers that have been negatively impacted by Covid-19. The department urged furnishers of credit information to, among other things, report accommodations reached under the CARES Act as “current,” unless the credit was delinquent prior to the accommodation; report certain Covid-19 related delinquencies as forborne, deferred, or affected by a natural or declared disaster consistent with the furnisher’s treatment of the account; and promptly conduct reasonable investigations of consumer-disputed credit information.
New York regulator issues guidance for state consumer credit reporting agencies
On June 17, the New York State Department of Financial Services issued guidance to state-regulated consumer credit reporting agencies regarding support for New York consumers impacted by Covid-19. The guidance indicates that all state-regulated consumer credit reporting agencies have agreed to take a number of steps to mitigate consumer harm, including permitting consumers at least one free credit report per month for six months, reminding furnishers of information of the appropriate manner to report accommodations reached pursuant to the CARES Act, and posting on their website a link to a page dedicated to Covid-19 information and updates.
New York enacts legislation on residential mortgage payment forbearance
On June 17, New York Senate Bill 8243, which relates to the forbearance of residential mortgage payments, was signed into law. Specifically, SB 8243 requires New York regulated institutions to: (1) make applications for forbearance of any payment due on a residential mortgage on property located in New York “widely available to any qualified mortgagor who, during the covered period, is in arrears or on a trial period plan, or who has applied for loss mitigation and demonstrates financial hardship during the covered period;” and (2) grant such forbearance for a period of 180 days to any such qualified mortgagor with an option to extend an additional 180 days. Such forbearances may be backdated to March 7, 2020. SB 8243 also sets forth certain requirements for the mortgage forbearances granted under the law, which includes limitations on credit reporting and charging interest and late fees. The law also provides that adhering to SB 8243 will be a condition precedent to commencing a foreclosure action resulting from a missed payment, which would have otherwise been subject to the law. However, SB 8243 does not apply to, or affect mortgage loans made, insured, or secured by a United States agency or instrumentality, a government sponsored enterprise, or a federal home loan, or the rights and obligations of any lender, issuer, servicer or trustee of such obligations, including servicers for the Government National Mortgage Association.
On the same day, New York Senate Bill 8428, which also relates to the forbearance of residential mortgage loans, was signed into the law. The requirements in SB 8428 are similar to the requirements set forth in SB 8243, except that SB 8428 clarify certain areas of the law including the types of properties subject to the Law, who may receive a forbearance, and when a forbearance extension is warranted. SB 8428 also clarifies that the obligation to grant the forbearance relief required is subject to the regulated institution having sufficient capital and liquidity to meet its obligations and to operate in a safe and sound manner. To the extent a regulated institution determines it is unable to offer relief, it must alert the Department of Financial Institutions within five days of making such a determination.
NYDFS clarifies Final Part 419 mortgage servicer compliance
On June 12, NYDFS issued an industry letter and a set of Frequently Asked Questions (FAQs) to mortgage servicers in response to inquiries regarding the requirements and implementation of 3 NYCRR Part 419 (Final Part 419), which governs the conduct and business practices for mortgage loan servicers operating in New York. Final Part 419 “codifies certain requirements imposed by Regulations X and Z and best practices that have become commonplace since Part 419 was first adopted ten years ago.” The FAQs answer common questions related to topics such as the definition of a servicer, applicability to reverse mortgages, small servicer exemptions, and escrow account analysis requirements for borrowers with loans in forbearance as a result of the Covid-19 pandemic. The industry letter and FAQs also highlight two specific issues concerning the application of Final Part 419 on open-end credit plans or Home Equity Lines of Credit (HELOCs):
- While Final Part 419 applies to HELOCs, NYDFS clarifies that, until further notice, a servicer that furnishes a periodic statement to a borrower in connection with an open-end credit plan or HELOC that “complies with the requirements of 12 CFR § 1026.7(a) is not required to furnish a periodic statement to such borrower pursuant to Part 419.4(c).”
- Because the requirements of 3 NYCRR §419.7 governing delinquencies and loss mitigation efforts currently only apply to open-end credit plans or HELOCs that are in first lien positions, NYDFS states it will not apply these provisions to open-end credit plans or HELOCs that are not in a first lien position.
NYDFS states that it “will continue to monitor the application of these two interpretations and their impact on consumers and may revisit them at a later date.” Final Part 419, as extended, is effective June 15.
North Carolina Secretary of State issues requirements for remote notarizations
The North Carolina Secretary of State has issued requirements and FAQs for remote video notarizations, which are permissible under North Carolina’s emergency video notarization law from May 2 until August 1. The requirements specify, among other things, the identification and recordkeeping requirements for remote notarizations using video conference technology.
California Court of Appeal: FTC Holder Rule preempts state law authorizing recovery of certain attorney fees
On June 9, the California Court of Appeal for the First Appellate District affirmed a trial court’s judgment in favor of a bank (defendant), holding that the FTC’s Holder Rule preempts California Civil Code section 1459.5, which authorizes a plaintiff to recover attorney fees on a Holder Rule claim even if it results in a total recovery that exceeds the amount the plaintiff paid under the contract. According to the court, the plaintiff sued the defendant (who was assigned the vehicle credit sale contract) after he discovered that the seller failed to disclose that the vehicle had been in a major collision, thus reducing its value. The parties settled for a sum equal to the vehicle’s purchase price, and the plaintiff filed a motion for attorney fees. The trial court denied the motion, determining that the plaintiff was not entitled to fees under a holding in Lafferty v. Wells Fargo Bank, which stated that a debtor cannot recover damages and attorney fees for a Holder Rule claim that collectively exceed the amount paid by the debtor under the contract. The plaintiff appealed.
The Court of Appeal agreed with the trial court, determining that it did not need to resolve the parties’ dispute as to whether Lafferty correctly construed the Holder Rule’s limitation on recovery because the FTC’s construction of the Holder Rule is entitled to deference. The Court of Appeal referenced the FTC’s 2019 confirmation of the Holder Rule (Rule Confirmation), after Lafferty issued, which addressed, among other things, several comments related to whether the Holder Rule’s “limitation on recovery to ‘amounts paid by the debtor’ allows or should allow consumers to recover attorneys’ fees above that cap.” The FTC provided the following statement within the Rule Confirmation: “We conclude that if a federal or state law separately provides for recovery of attorneys’ fees independent of claims or defenses arising from the seller’s misconduct, nothing in the Rule limits such recovery. Conversely, if the holder’s liability for fees is based on claims against the seller that are persevered by the Holder Rule Notice, the payment that the consumer may recover from the holder—including any recovery based on attorneys’ fees—cannot exceed the amount the consumer paid under the contract.”
9th Circuit: Payday arbitration remanded because of new California interest rate law
On June 9, the U.S. Court of Appeals for the Ninth Circuit remanded a case against a payday lender back to district court because a newly issued California amendment took effect—which prohibits lenders from issuing loans between $2,500 and $10,000 with charges over 36 percent calculated as an annual simple interest rate (covered by InfoBytes here)—which may impact the court’s analysis. As also previously covered by InfoBytes, plaintiffs filed a putative class action suit against the payday lender alleging the lender sells loans with usurious interest rates, which are prohibited under California’s Unfair Competition Law and Consumer Legal Remedies Act. The lender moved to compel arbitration, but the district court concluded the arbitration provision was unenforceable. In addition to finding the arbitration provisions procedurally unconscionable, the court found that the provision contained a waiver of public injunctive relief, which was substantively unconscionable based on the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here).
On appeal, the 9th Circuit remanded the case back to the district court to reconsider whether the consumer’s requested injunction enjoining the payday lender from issuing loans above $10,000 would actually prevent a threat of future harm in light of the new California law and considering the operative complaint does not allege the lender issued or continues to issue loans above $10,000. Additionally, the appellate court rejected the lender’s arguments that McGill was preempted under the Federal Arbitration Act (FAA) and agreed with the district court’s application of California law, because “Kansas law is contrary to California policy and [] California holds a materially greater interest in this litigation.”
New Jersey Bureau of Securities begins annual examinations of investment advisors
On June 12, the New Jersey Bureau of Securities, within the Office of the Attorney General Division of Consumer Affairs, announced that its annual investment adviser examinations are underway. This year’s examination will include questions asking investment adviser firms, among other things, about the impact of Covid-19 on operations and the steps taken to protect senior investors. The examination intends to survey the impact Covid-19 has had on investment advisers and to assess their business continuity plans.
Massachusetts Division of Banks issues guidance to credit unions on annual meetings
On June 12, the Massachusetts Office of Consumer Affairs and Business Regulation, Division of Banks, issued industry guidance regarding annual meetings for Massachusetts chartered credit unions. Massachusetts credit unions that have not yet held their annual membership meeting may postpone the annual meeting until the state of emergency is lifted, the order declaring the state of emergency has expired or is rescinded, or such time as the credit union believes it may safely hold the meeting. Alternatively, a credit union may remotely hold the annual meeting, or may conduct a hybrid meeting consisting of a combination of remote communication in conjunction with a limited in-person meeting. A credit union may also utilize mail voting with either options. Credit unions that exercise a virtual meeting option must comply with certain requirements in the guidance.