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Indiana issues rule providing temporary authority for mortgage loan originators
On August 28, the Indiana Department of Financial Institutions published in the Indiana Register an emergency rule providing 120-day temporary authority for certain mortgage loan originators (MLOs) to originate loans in Indiana without a state license, pursuant to Section 106 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The new rule provides that in order to be eligible for temporary authority to operate, an MLO, among other things, must have been licensed as an MLO in another state continuously during the past 30 days or operating as a registered MLO for a depository institution continuously for the past year. The rule permits an eligible MLO applicant to engage in mortgage transactions while their application is pending for licensure for up to 120 days or upon approval of the licensing application, whichever is sooner, beginning November 24.
NYDFS investigating student debt relief industry
On September 5, NYDFS announced a new investigation into the student debt relief industry. NYDFS is issuing subpoenas to eight student debt relief companies to investigate deceptive practices in the industry, including misrepresenting the ability to achieve debt relief and charging improper fees. According to NYDFS, “deceptive” student debt relief companies charge borrowers high fees to consolidate their multiple student loans, while the U.S. Department of Education will offer the same programs free of charge. NYDFS estimates that New York residents collectively owe over $86 billion in student loans.
New York says creditors prohibited from obtaining confessions of judgments against out-of-state borrowers
On August 30, the New York governor signed S 6395, which prohibits creditors from obtaining confessions of judgments through the New York court system against individuals and businesses located outside of the state in order to seize borrower assets. According to a press release issued by Governor Cuomo, prior to the enactment of S 6395, creditors were able to “freeze and seize a borrower’s assets by obtaining a judgment entered in a court far from where the contested agreement was executed, making it difficult for a borrower to legally contest the unfair penalty.” Under S 6395, an entry of judgment may only be filed in “the county where the defendant’s affidavit stated that the defendant resided when it was executed or where the defendant resided at the time of filing.” For non-natural persons, the county of residence is where it has a place of business. Notably, government agencies engaged in enforcing civil or criminal law against a person or a non-natural person, are exempt from the bill’s measures and may file an affidavit in any county within the state. S 6395 is effective immediately.
11th Circuit: Payday lenders’ agreements unenforceable under Georgia policy
On August 28, the U.S. Court of Appeals for the 11th Circuit held that a district court did not err when it denied a group of lenders’ motion to dismiss class action claims alleging that their loan agreements violated Georgia’s Payday Lending Act (PLA), the Georgia Industrial Loan Act (GILA), and state usury laws. According to the opinion, the plaintiffs entered into agreements for loans generally amounting to less than $3,000 that were to be repaid from recoveries received by the plaintiffs in their individual personal injury lawsuits. The defendants moved to dismiss the complaint and strike the class allegations, arguing that the loan agreements’ forum-selection clause required the borrowers to bring their lawsuit in Illinois, and that the class action waiver provision in the agreements prevented the plaintiffs from being able to file any class action against them. The plaintiffs maintained, however, that these provisions in the loan agreements were unenforceable because they violated Georgia public policy, and the district court agreed.
On appeal, the 11th Circuit affirmed the district court because it also concluded that the loan agreements’ forum-selection and class action waiver provisions were unenforceable as against Georgia public policy. Regarding the forum-selection clause, the appellate court held that the PLA “establish[es] a clear public policy against out-of-state lenders using forum selection clauses to avoid litigation in Georgia courts.” Regarding the class action waiver, the appellate court noted that both the PLA and the GILA specifically authorize class action suits; that the district court did not consider whether the waivers were procedurally or substantively unconscionable did not matter because the fact that the waivers violate public policy is an independent and sufficient basis to hold them unenforceable. The defendants also noted that the statutes did not prohibit class action waivers or create a statutory right to pursue class actions, but a contractual provision “need not literally conflict with Georgia law to contravene public policy.” (Citing Langford v. Royal Indemnity Co.) Instead, the appellate court agreed with the district court that “enforcement of the class action waivers in this context would eliminate a remedy contemplated by the Georgia legislature and undermine the purpose of the PLA and the GILA.”
3rd Circuit affirms dismissal of NFL season ticket class action
On August 29, the U.S. Court of Appeals for the 3rd Circuit affirmed the dismissal of a putative class action alleging that an NFL team’s season ticket sales practices had violated the implied covenant of good faith and fair dealing and the New Jersey Consumer Fraud Act (CFA). As previously covered by InfoBytes, the case was centered on the plaintiff’s purchase of a personal seat license (PSL) that “both allows and obligates” him to buy season tickets for particular seats at the team’s home games. The team later began selling seats in the same seating section without requiring PSLs, which the plaintiff alleged made his PSL “valueless” and “‘unsellable’ because defendants are currently giving away for free what cost him $8,000.” The district court dismissed the plaintiff’s claims with prejudice because the plaintiff had received the “reasonably expected fruits under the contract.”
On appeal, the 3rd Circuit agreed with the district court that the plaintiff had “received the fruits of his contract” because “[n]othing in the complaint suggests [the plaintiff] has lost the exclusive right to purchase season tickets for these seats” and the fact that the team “might now sell adjacent seats to members of the general public does not implicate [the plaintiff’s] rights and certainly does not strip him of the benefit for which he bargained.” Regarding the value of his PSA, the appellate court noted that when purchasing the PSL, the plaintiff represented that he was not acquiring it as an investment and had no expectation of profit. Finally, with regard to the CFA claim, the appellate court held that “simply changing the terms on which defendants sell other seats in the stadium is not misleading.”
Illinois creates Blockchain Technology Act
On August 23, the Illinois governor signed HB 3575 to create the Blockchain Technology Act. Under the Act, “blockchain” is defined as “an electronic record created by the use of a decentralized method by multiple parties to verify and store a digital record of transactions which is secured by the use of a cryptographic hash of previous transaction information.” Among other things, the Act specifies permitted uses of blockchain technology in transactions and proceedings, such as in smart contracts, electronic records and signatures, and provides several limitations, including a provision stipulating that if a law requires a contract or record to be in writing, the legal enforceability may be denied if the blockchain transaction cannot later be accurately reproduced for all parties. Moreover, local government units are prohibited from imposing taxes or fees for the use of blockchain technology, and cannot require a person or entity to obtain a certificate, license, or permit in order to use a blockchain or smart contract. HB 3575 takes effect January 1, 2020.
Illinois updates Consumer Installment Loan Act and Payday Loan Reform Act
On August 23, the Illinois governor signed SB 1758, which amends the state’s Consumer Installment Loan Act and the Payday Loan Reform Act. Generally, payday loans must be repayable in substantially equal and consecutive installments. The amendment clarifies that a “‘substantially equal installment’ includes a last regularly scheduled payment that may be less than, but not more than 5% larger than, the previous scheduled payment according to a disclosed payment schedule agreed to by the parties.” The amendments take effect immediately.
District Court compels arbitration for most class action overdraft claims
On August 23, the U.S. District Court for the Northern District of California held that a portion of a class action suit alleging a bank improperly assessed overdraft fees must proceed to arbitration. According to the opinion, a consumer filed the class action complaint alleging the bank charged multiple non-sufficient funds fees for the same credit card payment transaction, in violation of the contract between the bank and the consumer. The class action alleged claims for breach of contract, or, in the alternative, unjust enrichment, as well as a claim for violating the California Business & Professions Code and a claim for violating the California Consumer Legal Remedies Act. The bank moved to compel arbitration of all the claims based on an arbitration clause contained in the customer deposit agreement. The court concluded that the claims for breach of contract and unjust enrichment are covered by the arbitration clause in the deposit agreement and therefore compelled arbitration. As for the injunctive relief the consumer sought under the California state statutory claims, the consumer argued that the court should apply the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here), which held that a waiver of the plaintiff’s substantive right to seek public injunctive relief is not enforceable, and that “Texas law is contrary to a fundamental policy of California.” The court determined that because Texas does not have a “rule comparable to McGill and because California has a materially greater interest than Texas,” California law applies to the injunctive relief claims and therefore, the claims “must be litigated and not arbitrated.” However, to the extent the consumer sought monetary relief under the state statutory claims, those claims must be arbitrated.
New York restores Martin Act’s six-year statute of limitations
On August 26, the New York governor signed S 6536, which returns the statute of limitations within which the state’s attorney general must bring financial fraud claims under the Martin Act to six years. As previously covered by InfoBytes, in 2018 the New York Court of Appeals issued a ruling that claims brought under the Martin Act are governed by a statute of limitations of three years, not six. According to the majority in that court decision, the three-year period applied because the Martin Act “expands upon, rather than codifies, the common law of fraud” and “imposes numerous obligations—or ‘liabilities’—that did not exist at common law,” which justified the imposition of a three-year statute of limitations. However, Governor Andrew Cuomo noted that “[b]y restoring the six-year statute of limitations under the Martin Act, we are enhancing one of the state’s most powerful tools to prosecute financial fraud so we can hold more bad actors accountable, protect investors and achieve a fairer New York for all.” Effective immediately, S 6536 will amend Section 213 of the state’s Civil Practice Law and Rules to include Martin Act cases among those that must be brought within six years.
CSBS launches online tools to navigate state rules
On August 21, the Conference of State Bank Supervisors (CSBS) launched three online tools designed to assist financial institutions navigate the state regulatory landscape and protect against cyber risks. The tools are: (i) a portal of state agency guidance for nonbank financial services companies; (ii) an interactive map of agent-of-the-payee exemptions, which identifies the states that do not require a money transmitter license for receiving a payment on behalf of a third party; and (iii) a cybersecurity 101 resource center for banks and nonbanks that features a guide to help financial institutions develop comprehensive cybersecurity programs. The tools were created as part of the CSBS Vision 2020, which is geared towards streamlining the state regulatory system to support business innovation and harmonize licensing and supervisory practices, while still protecting the rights of consumers.