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Agencies provide guidance on Hurricane Ida and California wildfires
Recently, the FDIC, Federal Reserve Board, NCUA, OCC, and the Conference of State Bank Supervisors issued joint statements covering supervisory practices for financial institutions affected by Hurricane Ida and the California wildfires (see here and here). Among other things, the agencies informed institutions facing operational challenges that the regulators will expedite requests for temporary facilities, noting that in most cases, “a telephone notice to the primary federal and/or state regulator will suffice initially to start the approval process, with necessary written notification being submitted shortly thereafter.” The agencies also called on financial institutions to “work constructively” with affected borrowers, noting that “prudent efforts” to adjust or alter loan terms in affected areas “should not be subject to examiner criticism.” Institutions facing difficulties in complying with any publishing and reporting requirements should contact their primary federal and/or state regulator. Additionally, the agencies noted that institutions may receive Community Reinvestment Act consideration for community development loans, investments, and services that revitalize or stabilize federally designated disaster areas. Institutions are also encouraged to monitor municipal securities and loans impacted by Hurricane Ida and the California wildfires.
New York governor extends moratorium on residential and commercial evictions
On September 2, New York’s Governor Hochul extended the moratorium on Covid-19-related residential and commercial evictions until January 15, 2022. According to the announcement, “all protections of the Tenant Safe Harbor Act for residential tenants who are suffering financial hardship as a result of the pandemic will remain in place, along with new protections on commercial evictions.” For our previous coverage regarding the eviction moratorium, see here.
The new law also: (i) creates a $25 million fund to provide legal services to tenants facing eviction proceedings and to aid them in maintaining housing stability in areas of New York where there is not access to free legal assistance for such services; and (ii) establishes a $250 million Supplemental Emergency Rental Assistance program to serve additional households and to better support landlords
New Mexico sues gaming app maker for COPPA violations
On August 25, the New Mexico attorney general filed a lawsuit against an entertainment corporation for allegedly violating the Children’s Online Privacy Protection Act Rule (COPPA) and New Mexico’s Unfair Practices Act by knowingly collecting and selling personal information from children under the age of 13 without verifiable parental consent. According to the AG, the company purportedly collects data from children who play one of its gaming apps and sells it to third-party marketing companies, who in turn, analyze and repackage the data to sell targeted advertisements to those same children. The complaint stated that, “[t]his conduct endangers the children of New Mexico, undermines the ability of their parents to protect children and their privacy, and violates state and federal law,” adding that the “surreptitious and intentional monitoring, tracking, and profiling of children—in direct violation not only of federal law but of longstanding societal norms—is egregious and highly offensive conduct.” The AG further emphasized that even if a game is targeted towards a broad audience, developers must still ensure that data is not collected from users under the age of 13 without parental consent. The complaint seeks an injunction to prohibit the company’s data collection practices as well as civil penalties and restitution.
District Court denies bank’s motion to dismiss class action regarding overdrafts
On August 23, the U.S. District Court for the District of Connecticut denied a motion to dismiss a putative class action case, in which the plaintiff alleged that a national bank’s (defendant) overdraft opt-in notice failed to satisfy Regulation E of the Electronic Funds Transfer Act (EFTA), and that the bank’s assessment of overdraft fees in light of such failure violated the Connecticut Unfair Trade Practices Act (CUFTA). The plaintiff alleged that she and other members of the putative class “opted into [the defendant’s] overdraft program for debit card and ATM transactions,” and were charged overdraft fees on an “available” balance policy multiple times. However, the defendant’s opt-in disclosure agreement states that an overdraft only happens “when you do not have enough money in your account to cover a transaction, but we pay it anyway,” which is a description of the “actual” balance of an account. Accordingly, the defendant “charge[d] overdraft fees even at times when there [was] a sufficient amount of money in a consumer’s account.” The plaintiff alleged that the defendant continued this system with knowledge of EFTA’s requirements and “that its opt-in agreement did not provide an accurate, clear, and easily understandable definition of an overdraft.”
In its motion to dismiss, the defendant argued that the plaintiff failed to state a claim alleging violations of the EFTA because, among other things: (i) when the opt-in agreement is considered together with other documents provided to the customer upon opening an account, the policies are clearly explained; and (ii) the defendant is shielded from liability under the safe harbor provisions of the EFTA, because the opt-in language utilized is identical to the CFPB’s model form. The defendant also argued that it complied with Regulation E, “because the opt-in notice it used, when read together with an ‘Account Agreement’ and ‘Overdraft Disclosure’ it says were provided to [the plaintiff] when she opened her account, made clear that it would charge overdraft fees when her ‘available balance’ fell below zero.”
The court found that the defendant’s argument regarding compliance with Regulation E “relies on documents that are not attached to, incorporated in, or otherwise ‘integral’ to the complaint” and that Regulation E requires that the notice itself be a “segregated” document, which utilizes “clear and readily understandable” language. The court also ruled that though the defendant utilized language from the CFPB model form, the plaintiff plausibly alleges that use of the form was not “an appropriate model” since the language did not disclose the defendants overdraft program in a “clear and readily understandable” manner.
OCC cites preemption decision in valid-when-made rule challenge
On August 24, the OCC filed a statement of recent decision in support of its motion for summary judgment in an action brought against the agency by several state attorneys general challenging the OCC’s final rule on “Permissible Interest on Loans that are Sold, Assigned, or Otherwise Transferred” (known also as the valid-when-made rule). The final rule was designed to effectively reverse the U.S. Court of Appeals for the Second Circuit’s 2015 Madden v. Midland Funding decision and provide that “[i]nterest on a loan that is permissible under [12 U.S.C. § 85 for national bank or 12 U.S.C. § 1463(g)(1) for federal thrifts] shall not be affected by the sale, assignment, or other transfer of the loan.” (Covered by a Buckley Special Alert.) The states’ challenge argued that the rule “impermissibly preempts state law,” is “contrary to the plain language” of section 85 (and section 1463(g)(1)), and “contravenes the judgment of Congress,” which declined to extend preemption to non-banks. Moreover, the states contended that the OCC “failed to give meaningful consideration” to the commentary received regarding the rule, essentially enabling “‘rent-a-bank’ schemes.” (Covered by InfoBytes here.) Both parties sought summary judgment, with the OCC arguing that the final rule validly interprets the National Bank Act (NBA) and that not only does the final rule reasonably interpret the “gap” in section 85, it is consistent with section 85’s “purpose of facilitating national banks’ ability to operate their nationwide lending programs.” Moreover, the OCC asserted that 12 U.S.C. § 25b’s preemption standards do not apply to the final rule, because, among other things, the OCC “has not concluded that a state consumer financial law is being preempted.” (Covered by InfoBytes here.)
In its August 24 filing, the OCC brought to the court’s attention a recent order issued by the U.S. District Court for the Western District of Wisconsin. As previously covered by InfoBytes, the Wisconsin court reviewed claims under the FDCPA and the Wisconsin Consumer Act (WCA) against a debt-purchasing company and a law firm hired by the company to recover outstanding debt and purported late fees on the plaintiff’s account in a separate state-court action. Among other things, the court examined whether the state law’s notice and right-to-cure provisions were federally preempted by the NBA, as the original creditor’s rights and duties were assigned to the debt-purchasing company when the account was sold. The court ultimately concluded that the WCA provisions “are inapplicable to national banks by reason of federal preemption,” and, as such, the court found “that a debt collector assigned a debt from a national bank is likewise exempt from those requirements” and was not required to send the plaintiff a right-to-cure letter “as a precondition to accelerating his debt or filing suit against him.”
Virginia announces consent judgment against investment firm
On August 24, the Virginia attorney general announced a consent judgment entered on August 16 against a Virginia-based investment company and its managing member (collectively, "defendants") to resolve allegations that they violated Virginia’s consumer finance statutes. The consent judgment settled a lawsuit in which the AG alleged that defendants “made loans to distressed homeowners and charged interest or other compensation greatly exceeding an effective annual interest rate of 12 percent, without being licensed as a consumer finance company or coming within another exemption to Virginia’s usury laws.” According to the AG, the complaint alleged that a representative of the defendant investment company approached a Virginia Beach homeowner facing foreclosure and presented her with an agreement in which the defendants would provide the amount needed to stop the foreclosure in exchange for permission to list and sell the homeowner’s separate Virginia Beach property at an above-market commission rate or, if the sale did not occur, to purchase that property at a significantly below market price. Under the terms of the consent judgment, the defendants, among other things are: (i) permanently enjoined from violating specific consumer finance statutes, including by “making any loan requiring a collateral sale and/or purchase to Virginia consumers”; (ii) required to pay $11,000 in attorneys’ fees and costs; and (iii) required to provide certain restitution and/or forbearance relief to consumers identified by the defendants pursuant to the consent judgment as well as “to any Virginia consumer who comes forward within two (2) years after entry of the Consent Judgment with evidence establishing that he or she received a loan requiring a collateral sale and/or purchase from [defendants]” during the period from January 1, 2018 to the present.
DFPI addresses MTA licensing exemptions
Recently, the California Department of Financial Protection and Innovation (DFPI) released several new opinion letters covering aspects of the California Money Transmission Act (MTA) related to virtual currency and agent of payee rules. Highlights from the redacted letters include:
- Agent of Payee – Fund Transfers in Connection with Real Estate Closing Transactions. The redacted opinion letter reviewed whether a company—licensed as a money transmitter in several states, including California, and registered with FinCEN as a money services business—is eligible for the agent-of-payee exemption under the MTA. The company proposes to “facilitate fund transfers in connection with real estate closing transactions” during which it “will be authorized to receive real estate closing funds on behalf of its customer (the seller of real estate).” The payment funds will first flow from the buyer of real estate to the company via the buyer’s lawyer or title company, and then from the company to the seller after the company converts the funds from U.S. dollars to another currency. By providing these services, the company, as the seller’s agent, will receive money from the buyer pursuant to a preexisting written contract between the company and the seller. DFPI concluded that “[t]o the extent these fund transfers take place in California or are with, to, or from persons located in California, [the company’s] services constitute “receiving money for transmission” because [the company] receives money from the buyer for transfer to the seller.” However, DFPI noted that a provision in the written contract, which appoints the company as the agent of the seller when the seller is located in California, allows the company’s services to satisfy the requirements of the agent-of-payee exemption in Financial Code section 2010, subdivision (l). The agent-of-payee exemption, DFPI stressed though, does not apply to sellers outside of California.
- Bitcoin ATM Kiosk. Two redacted opinion letters (see here and here) examined whether the sale and purchase of bitcoin through ATMs/kiosks described by the companies is subject to licensure under the MTA. In each instance, the transaction will only be between the consumer using the ATM/kiosk and the company, the transaction will be completed instantly without involving third parties, and any bitcoin sold will be provided from the company’s own inventory. Moreover, the letters state that the companies do not hold virtual currency on behalf of customers nor do they act in a fiduciary capacity. Because the companies’ activities are limited to selling bitcoin, DFPI determined that an MTA license is not required because the activities “do[] not involve the sale or issuance of a payment instrument, the sale or issuance of stored value, or receiving money for transmission.” DFPI reminded the companies that its determination is limited to the activities specified in the letters and does not relieve them from any FinCEN, federal, or state regulatory obligations.
DFPI’s CFL final regulations take effect October 1
Recently, the California Department of Financial Protection and Innovation (DFPI) reminded licensees and Property Assessed Clean Energy (PACE) program administrators that new final regulations under the California Financing Law (CFL) will take effect October 1. According to DFPI’s final statement of reasons, the regulations, among other things, amend existing licensing rules to transition all licensees under the CFL to registration through the Nationwide Multistate Licensing System (NMLS). New CFL license applications must be submitted through the NMLS on or after October 1, while existing licensees not yet on the NMLS must transition to the system by December 31. Additionally, the final regulations implement AB 1284, which was signed into law in 2017 and, among other things, requires a private entity that administers a PACE program on behalf of a public agency to be licensed under the CFL (covered by InfoBytes here). These private PACE program administrators must also comply with several new regulatory provisions, including those related to advertising standards and disclosures. Additional information for licensees transitioning to NMLS can be accessed through DFPI’s FAQs.
CSBS responds to Waters on state supervisory activities
On August 26, the Conference of State Bank Supervisors (CSBS) sent a letter to House Financial Services Committee Chairwoman Maxine Waters (D-CA) detailing information on CSBS' response to the Covid-19 pandemic related to supervisory efforts, policy initiatives, and mortgage servicing plans. The letter is in response to an August 5th letter from Chairwoman Waters to CSBS, CFPB, OCC, NCUA, FDIC, and Fed asking the agencies, among other things, to immediately update the “Joint Statement on Supervisory and Enforcement Practices Regarding the Mortgage Servicing Rules in Response to the COVID-19 Emergency and the CARES Act dated April 3, 2020,” and to take other steps to “provide vigorous oversight and encourage mortgage servicers to work with borrowers to avoid unnecessary foreclosures.”
The letter from the CSBS detailed the consumer protection and supervision efforts of state regulators during the Covid-19 pandemic, noting that they have “monitored the activities of mortgage originators and servicers … and have acted responsively and decisively with expanded examination approaches, new policy, and public guidance.” The letter expanded on these actions by setting forth its efforts in “three very broad categories”: networked supervision, direct supervision, and supervision policy. In the latter two categories, CSBS noted the steps it has taken during the pandemic to “remain vigilant to signs of unwarranted foreclosure activity or other consumer harm.” The letter also agreed that the “states’ dual mandate to protect consumers and ensure a healthy economic environment has been the appropriate approach” during Covid-19.
New York limits overdraft practices for state-chartered banks
On August 20, the New York governor signed S1465, which requires New York-chartered banks to either process checks in the order they are received or from the smallest to largest dollar amount for each business day’s transactions in order to help curb overdraft fees. The act also provides that while banks may dishonor checks for insufficient funds, they must make payments on any subsequent smaller transactions that may be covered by funds in the account. Under current law, if a check is presented that exceeds the available funds, the check is dishonored, as are all subsequent checks received by the bank, even if the account has sufficient funds to honor one or more of the smaller, subsequent checks. Banks are also required to disclose in writing to consumers the order in which checks are drawn at the time an account is opened and before any change is made to such policy. The act takes effect January 1.