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Illinois passes emergency rental assistance legislation
On May 17, Illinois enacted the Emergency Housing Rental Assistance Program Act. Among other things, the law details how the state will distribute funds received through the Federal Emergency Rental Assistance program. The law also provides for the sealing of residential eviction records through August 2022 and places judicial sales of property on hold until July 31, 2021.
DFPI: Bitcoin ATM kiosk not subject to MTA licensure
Recently, California’s Department of Financial Protection and Innovation (DFPI) released three new opinion letters (see here, here, and here) covering aspects of the California Money Transmission Act (MTA) related to bitcoin automated teller machines (ATMs) and kiosks. The letters explain that the sale and purchase of bitcoin through an ATM kiosk as described by the inquiring companies is not subject to licensure under the MTA because it does not meet California’s definition of “money transmission.” In each instance, the transaction would only be between the consumer/bitcoin purchaser using the ATM kiosk and the respective company. DFPI reminded the companies, however, that its determination is limited to the activities specified in the letters and does not extend to any other activities that the companies may engage in. Moreover, the letters do not relieve the companies from any FinCEN, federal, or state regulatory obligations.
NYDFS, insurance company reach $1.8 million cyber breach settlement
On May 13, NYDFS announced a settlement with an insurance company to resolve allegations that the broker violated the state’s cybersecurity regulation (23 NYCRR Part 500) by failing to implement multi-factor authentication or reasonably equivalent or more secure access controls. Under Part 500.12(b), covered entities are required to implement such protocols (see FAQs here). NYDFS’s investigation also revealed that the insurance company falsely certified its compliance with the cybersecurity regulation for 2018. Under the terms of the consent order, the company will pay a $1.8 million civil monetary penalty and will undertake improvements to strengthen its existing cybersecurity program to ensure compliance with 23 NYCRR Part 500. NYDFS acknowledged the broker’s “commendable” cooperation throughout the examination and investigation and stated that the broker had demonstrated its commitment to remediation.
2nd Circuit affirms borrower standing in mortgage recordation delay suit
On May 10, the U.S. Court of Appeals for the Second Circuit determined that class members have constitutional standing to sue a national bank for allegedly violating New York’s mortgage-satisfaction-recording statutes, which require lenders to record borrowers’ repayments within 30 days. The plaintiffs filed a class action suit alleging the bank’s recordation delay harmed their financial reputations, impaired their credit, and limited their borrowing capacity. The district court agreed, ruling that the plaintiffs had Article III standing to sue because the bank’s alleged violation of the mortgage-satisfaction-recording statutes created a “material risk of harm” to them.
On appeal, the majority opinion first determined, among other things, that “state legislatures may create legally protected interests whose violation supports Article III standing, subject to certain federal limitations.” The alleged state law violations in this matter, the majority wrote, constitute a concrete and particularized harm to the plaintiffs in the form of both reputational injury and limitations in borrowing capacity during the recordation delay period. Moreover, the majority concluded that the bank’s alleged failure to report the plaintiffs’ mortgage discharge “posed a real risk of material harm” because the public record reflected an outstanding debt of over $50,000, which could “reasonably be inferred to have substantially restricted” the plaintiffs’ borrowing capacity. The dissenting judge argued, however, that the plaintiffs “never suffered a cloud on title prohibiting them from selling their property, or adverse effects on their credit, or an inability to finance another property, or even a risk of these harms,” and that the “trivial nature of a recordation delay is reflected in the 30-day delay that is tolerated without penalty, and by the small penalty exacted even after 90 days.”
The 2nd Circuit joined the Third, Seventh, Ninth, and Tenth circuits in holding that state legislatures have the power to “create ‘legally protected interests’” that, when violated, satisfy Article III injury-in-fact requirement, noting that it is “aware of no Circuit holding to the contrary.”
District Court signals approval of $3.3 million mortgage convenience fee settlement
On May 6, the U.S. District Court for the Central District of California preliminarily approved a revised class action settlement concerning allegations that a mortgage servicer charged borrowers a $15 convenience fee for making mortgage payments over the phone. The plaintiff filed a class action complaint in 2019 against the servicer alleging, among other things, that the servicer’s assessment of the convenience fee breached her mortgage agreement and violated the FDCPA, California’s Rosenthal Fair Debt Collection Practices Act, and California’s Unfair Competition Law. The parties reached a settlement in 2020, but the court denied approval, expressing concerns with several aspects of the settlement, including the adequacy of the settlement fund, anticipated attorneys’ fees and incentive award requests, and proposed notice to potential class members. Under the terms of the revised settlement, the servicer will be required to pay approximately $3.3 million into a settlement fund, which will be distributed to class members according to the proportional amount of the pay-to-pay fees charged to each borrower within the class period. Additionally, the named plaintiff agreed to seek an incentive award not to exceed $5,000, and attorneys’ fees and expenses will be capped at 25 percent of the settlement fund.
New York enacts legislation exempting stimulus payments from debt collectors
On May 13, the governor of New York signed legislation (S.5923-A/A.6617-A) that amends the New York Civil Practice Law and Rules to exempt “emergency relief funds” from being used to satisfy a money judgement, except in limited instances. This includes “tax refunds, recovery rebates, refundable tax credits, and any advances of any tax credits, under the federal Families First Coronavirus Response Act (FFCRA), Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act), Consolidated Appropriations Act of 2021, and American Rescue Plan Act of 2021 (ARPA).” A banking institution is also barred from asserting, claiming, or exercising any right of set off against these funds.
Nevada issues final extension to its work from home guidance
On May 13, the Nevada Department of Business of Industry, Division of Financial Institutions (“NFID”) extended its provisional guidance allowing employees of licensees to work from home (previously covered here, here, here, and here) until July 31, 2021. The NFID stated that they will not extend the work from home provisional guidance, and that licensees should plan accordingly.
California announces additional small business grants as part of its broader California Comeback Plan
On May 13, California’s Governor Gavin Newsom announced a new small business relief program, consisting of both business grants and tax credits, as a part of the broader “California Comeback Plan.” The program adds an additional $1.5 billion in grants to the already announced $2.5 billion, and provides $6.2 billion in tax credits available to small businesses.
District Court certifies student loan borrower class action
On December 2, the U.S. District Court for the Northern District of New York granted final approval of a class of student loan borrowers who claimed a defendant student loan servicer and other associated entities interfered with their rights to prepay or consolidate their Federal Family Education Loan Program student loans in accordance with certain guarantees under federal law. Specifically, the class alleged that they suffered harm when their applications seeking loan forgiveness were denied because the defendant failed to complete and return required loan verification certifications (LVCs) within 10 days. According to the class, the defendant allegedly “admitted that it failed to return LVCs within the time period mandated by law,” and in 2019 had entered into consent orders with the CFPB and NYDFS, “in which it conceded that it had failed to do so.” (Covered by InfoBytes here and here.) The complaint alleges several claims, including violations of New York General Business Law, breach of contract, and breach of the implied covenant of good faith and fair dealing.
OCC counters CSBS’s arguments in fintech charter challenge
On April 29, the OCC responded to the Conference of State Bank Supervisors’ (CSBS) most recent challenge to the OCC’s authority to issue Special Purpose National Bank Charters (SPNB). As previously covered by InfoBytes, CSBS filed a complaint last December opposing the OCC’s alleged impending approval of an SPNB for a financial services provider, arguing that the OCC is exceeding its chartering authority.
The OCC countered, however, that the same fatal flaws that pervaded CSBS’s prior challenges (covered by InfoBytes here), i.e., that its challenge is unripe and CSBS lacks standing, still remain. According to the OCC, the cited application (purportedly curing CSBS’s prior ripeness issues) is not for an SPNB—the proposed bank would conduct a full range of services, including deposit taking. Further, the OCC stated, even it if was an application for a SPNB charter, there are multiple additional steps that need to occur prior to the OCC issuing the charter, which made the challenge unripe. As to standing, the OCC asserted that any alleged injury to CSBS or its members is purely speculative. Finally, the OCC contended that CSBS’s challenge fails on the merits because the challenge relies on the premise that the company’s application must be for a SPNB, not a national bank, because the company is not going to apply for deposit insurance but there is no requirement in the National Bank Act, the Federal Deposit Insurance Act, or the Federal Reserve Act that requires all national banks to acquire FDIC insurance.