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State student loan ombudspersons push for automatic student loan discharges for disabled civilian borrowers
On March 3, student loan ombudspersons from seven states and the District of Columbia sent a joint letter to U.S. Department of Education (Department) Secretary Betsy DeVos and Social Security Administration (SSA) Commissioner Andrew Saul advocating for the automatic discharge of student loans for eligible borrowers under the Total and Permanent Disability (TPD) loan discharge program. Describing the current TPD program’s application process as “onerous,” the letter cites to the Department’s implementation of a presidential directive in 2019 that granted automatic student loan discharges to disabled veterans (covered by InfoBytes here), as an example of how to provide relief to borrowers “without further burdening them with a cumbersome application process.”
As asserted by the ombudspersons, the Higher Education Act of 1965 makes clear that a qualifying borrower’s loans shall be discharged if the borrower is (i) “permanently and totally disabled,” or (ii) “is ‘unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, has lasted for a continuous period of not less than 60 months, or can be expected to last for a continuous period of not less than 60 months.” The ombudspersons claim that the current TPD program’s application process is difficult for disabled borrowers to complete, and the difficulties posed by the annual documentation submission requirement during the post-discharge three-year monitoring period poses a risk of “having the[] discharged loans reinstated.” The student loan ombudspersons urged the Department and the SSA to work together to allow the Secretary to accept information shared by the SSA that the borrower is permanently disabled for the purpose of granting the discharge of student loan debt, and to minimize or eliminate the need for borrowers to proactively participate in the post-discharge monitoring process.
Michigan Office of Credit Unions issues a call for credit unions to review emergency procedures and continuity plans
On March 10, the Michigan Office of Credit Unions Director Denice Schultheiss issued a letter to credit unions calling on them to review their Disaster Recovery and Continuity of Operations Plans and Procedures in light of the Covid-19 crisis. Key operational aspects to be reviewed include: (i) supply staff operations; (ii) personnel policies; (iii) remote work capabilities; (iv) contingency plans for critical operations, systems, communications, and potential branch closures; (v) identification of third-party services that could be impaired; (vi) cash liquidity; and (vii) internal communication of preparedness policies and procedures. The letter also provided resources for credit unions as they review and assess current procedures.
Texas regulator issues guidance for credit union contingency plans
On March 10, the Texas Credit Union Department issued guidance to credit unions encouraging them to update their pandemic procedures, initiate contingency plans, and take steps to reduce Covid-19 transmission. The department also urged credit unions and their boards to remain informed on Covid-19 developments.
Wisconsin declares money laundering a state crime; provides penalties
On March 3, the Wisconsin governor signed SB 368, which criminalizes money laundering in the state and specifies penalties based on the amount of proceeds involved. Among other things, SB 368 outlines the contours of prohibited “money laundering” conduct, and establishes that any transaction where the proceeds of a money laundering transaction exceed $2,500 is a felony. Each of the provisions detailing the prohibited conduct contains a knowledge requirement. Both “proceeds” and “transaction” are defined terms under the new law. The bill is effective as of March 5.
California Senate confirms Manuel Alvarez as DBO Commissioner
On February 24, the California State Senate voted to confirm Manuel Alvarez as Commissioner of the California Department of Business Oversight (DBO). As previously covered by InfoBytes, the California governor announced the appointment in March 2019. The DBO issued an announcement following the confirmation vote, in which Commissioner Alvarez discussed financial service innovations California companies have made over the past decade, including those in the area of mobile payments and online lending to cryptocurrencies. Commissioner Alvarez stated that the changes “hold both promise and peril,” and explained that it is his “goal as Commissioner . . . to strike a sensible balance between consumer protections, which preserve the integrity of [California’s] financial ecosystem, and responsible technological innovation in financial services, which may increase access to quality and affordable financial products.”
As covered by a recent Buckley Special Alert, a trailer bill accompanying the governor’s proposed 2020-2021 state budget was recently released. The bill would enact the California Consumer Financial Protection Law and rename and expand the DBO’s authority to protect consumers from predatory practices and foster the responsible development of new financial products.
Washington regulator advises credit unions that virtual annual meetings are permitted
On March 6, the Washington Department of Financial Institutions, Division of Credit Unions notified credit unions that they are permitted to conduct annual meetings virtually, although any virtual meetings would need to be authorized by the institution’s bylaws and the meeting must otherwise be conducted under board-approved rules of procedure.
South Dakota amends real estate licensing provisions
On March 2, the South Dakota governor signed SB 28, which amends certain statutory provisions related to real estate licensing in the state. Among other things, SB 28 outlines reasons why an application for a license may be denied, including if an applicant “has been disciplined by a regulatory agency in relation to activities as a real estate salesperson or broker, broker associate, firm, appraiser, mortgage broker, or any other regulated licensee, including insurance, securities, law and commodities trading.” SB 28 also stipulates that the state’s real estate commission may issue restricted broker’s licenses, as well as administer and enforce outlined provisions. Licensure exemptions are also set forth. The amendments take effect July 1.
Washington regulator requests notice of credit union closures
On March 5, the Washington Department of Financial Institutions, Division of Credit Unions asked credit unions to provide notification if they temporarily close a branch or other location typically open to the public. The regulator also asked credit unions to provide notification if they otherwise limit the availability of services.
District court says unlicensed debt collection agency violated FDCPA
On February 24, the U.S. District Court for the District of Utah issued an order granting in part and denying in part a Wisconsin debt collection agency’s (defendant) motion for judgment on the pleadings in a suit concerning alleged FDCPA and state law violations. In 2019, the plaintiffs filed a lawsuit against the defendant—who had purchased the plaintiffs’ debts from various lending agencies—for attempting to garnish their wages to satisfy default judgments. The plaintiffs contended that the defendant violated Section 1692e(5) of the FDCPA and the Utah Consumer Sales Practice Act (UCSPA) because it operated as a collection agency in the state without being registered according to the Utah Collection Agency Act (UCAA). The defendant argued, however, that “failing to comply with the UCAA’s registration provision would not make it illegal for it to file debt collection actions in Utah,” and that “even if it is illegal to file suit while unregistered, courts cannot transform a UCAA violation into a private right of action under the FDCPA.”
The court determined that the plaintiffs adequately pleaded an FDCPA claim against the defendant for false, deceptive, or misleading representations, stating that it is illegal for a collection agency to file a debt collection action in Utah if it is not registered with the state according to UCAA provisions. According to the court, violating the UCAA’s registration provision “may provide a basis for finding an FDCPA violation when accompanied by the filing of a lawsuit to collect debt.” However, the court ruled that the plaintiffs failed to show that the defendant engaged in “deceptive and unconscionable sales practices” under the UCSPA. According to the court, the plaintiffs were “improperly attempting to transform a violation of the UCAA into a private right of action under the UCSPA” since they failed to plead sufficient facts to show that the defendant “knowingly made misleading statements or intended to deceive [the plaintiffs] regarding its registration or bond status.”
District court: Maryland’s interest on escrow law not preempted by National Bank Act
On February 24, the U.S. District Court for the District of Maryland denied a national bank’s motion to dismiss a putative class action alleging the bank violated Maryland law by not paying interest on escrow sums for residential mortgages. After the bank allegedly failed to pay the mortgage escrow interest, the consumer filed a lawsuit asserting various claims including for violation of Section 12-109 of the Maryland Consumer Protection Act (MCPA), which “requires lenders to pay interest on funds maintained in escrow on behalf of borrowers.” In response, the bank filed a motion to dismiss on the basis that the state law is preempted by the National Bank Act (NBA) and by 2004 OCC preemption regulations.
The court disagreed, determining that under the Dodd-Frank Act, national banks are required to pay interest on escrow accounts when mandated by applicable state or federal law. Citing previous decisions in similar escrow interest cases brought against the same bank in other states (covered by InfoBytes here and here), the court stated that Section 12-109 “does not prevent or significantly interfere with [the bank’s] exercise of its federal banking authority, because [Section] 12-109’s ‘interference’ is minimal, when compared with statutes that the Supreme Court has previously found were preempted.” The court noted that state law—which “still allows [the bank] to require escrow accounts for its borrowers”—provides that the bank must pay a small amount of interest to borrowers if it chooses to maintain escrow accounts. Moreover, the court concluded that the bank’s “suggestions about interference are belied by the fact that its direct competitors dutifully comply with [Section] 12-109.” As for the OCC’s 2004 preemption regulation, Section 34.4, the court determined that the regulation is entitled to minimal deference, and noted that it is not clear that the OCC, in promulgating the regulations, “ever considered whether the NBA preempts state laws that mandate payment of interest for escrow accounts.” According to the court, the regulations do not mention state escrow interest laws at all. As such, the court stated that it “will not defer to the OCC’s regulation, or to the agency’s current position that [Section] 12-109 is preempted.”