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Buckley Sandler Special Alert: CFPB Issues Rule Regarding Payday, Title, Deposit Advance, and Certain Other Installment Loans
On October 5, 2017, the CFPB published its final rule (the “Rule”) addressing payday loans, vehicle title loans, and certain other extensions of credit (collectively, “covered loans”). Among the Rule’s key provisions, it requires lenders to determine a borrower’s ability to repay for “covered short-term loans” and “covered longer-term balloon-payment loans,” but not other covered loans. Thus, unlike the CFPB’s proposed rule, the Rule does not require an ability to repay determination for longer-term loans that are not balloon loans. For certain covered short-term loans, lenders may provide a principal payoff option in lieu of conducting a full ability-to-repay analysis. Like the CFPB’s proposed rule, the Rule caps at three the number of covered loans that may be made in quick succession. The Rule also limits certain payment collection practices for all covered loans, including non-balloon loans.
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Click here to read full special alert.If you have questions about the rule or other related issues, please visit our Consumer Financial Protection Bureau practice page, or contact a Buckley Sandler attorney with whom you have worked in the past.
CFPB Issues Final Rule Regarding Payday, Title, Deposit Advance, and Other Installment Loans
On October 5, the CFPB published its final rule (Rule) addressing payday loans, vehicle title loans, deposit advance products, and longer-term balloon loans (collectively, “covered loans”). The CFPB previously announced the proposed rule in June 2016 (covered by a Buckley Sandler Special Alert). The final rule makes it an abusive and unfair practice for lenders to make a covered short-term loan or covered longer-term balloon loan without determining upfront that the borrower has the ability to repay (known as the “full-payment test”). The full-payment test varies depending on the covered loan, but in essence, requires the lender to reasonably determine that the borrower can meet basic living expenses and major financial obligations and still afford their highest monthly payment(s). The Rule puts a limitation of three on the number of loans that can be made in quick succession (within 30 days of each other).
Lenders may avoid the requirement of a “full-payment test” with covered loans by offering small-dollar, short-term loans that allow the borrower to pay down the principal more gradually or are determined to pose less financial risk to the borrower. In addition, loans that meet the parameters of “payday alternative loans” authorized by the National Credit Union Administration are excluded, as are no-cost advances and wage advance programs that meet certain conditions, though the Rule does impose restrictions on using these exceptions based on the borrower’s loan history.
In addition to requirements surrounding the borrower’s ability to repay, the CFPB also finalized rules regarding payment withdrawals and reporting requirements. The Rule prevents lenders from attempting to withdraw a payment from a borrower’s account after two consecutive withdrawal attempts have failed, unless the borrower has given specific authorization to do so. This restriction applies to covered loans as well as longer-term loans with account access and an APR above 36 percent. The Rule requires lenders to use Bureau-registered credit reporting systems to report and obtain information about loans made under the full-payment test or the principal payoff option.
The provision regarding the registration information systems takes effect 60 days after publication in the Federal Register. The rest of the Rule takes effect 21 months after publication in the Federal Register.
Buckley Sandler will follow up with a more detailed summary of the CFPB’s final rule.
Federal Agencies Offer Regulatory Relief for Hurricane Victims
Federal agencies continue to announce regulatory relief for financial institutions aiding consumers affected by recent hurricane disasters. InfoBytes coverage on previous disaster relief measures can be accessed here, here, and here.
Freddie Mac. On September 25, Freddie Mac issued Bulletin 2017-21 (Bulletin) to extend certain temporary selling and servicing requirements meant to provide flexibility and relief for mortgages and borrowers in areas impacted by all hurricanes occurring on or after August 25 through the 2017 hurricane season. In particular, Freddie Mac will reimburse sellers for property inspections completed prior to the sale or securitization of mortgages secured by properties in disaster areas caused by a 2017 hurricane. Freddie Mac is also requiring servicers to suspend foreclosure sales and eviction activities on property located in eligible disaster areas affected by Hurricane Maria. However, the Bulletin provides that a servicer can proceed with a foreclosure sale if it can confirm that (i) inspection was completed on a mortgaged property “identified as vacant or abandoned prior to Hurricane Maria,” and (ii) the property sustained no “insurable damage.” The Bulletin also reminds servicers to report all mortgages affected by an eligible disaster that are 31 or more days delinquent to Freddie Mac.
Veterans Affairs (VA). On September 27, the VA issued Circular 26-17-28 to outline measures that it encourages mortgagees to utilize to provide relief to veterans affected by Hurricane Maria. Specific recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.
FDIC. On September 27, the FDIC released a financial institution letter to provide additional guidance for depository institutions assisting affected consumers. As previously covered in Infobytes, the FDIC released guidance for Hurricane Harvey disaster relief, and issued a joint press release in conjunction with the Federal Reserve Board, Conference of State Bank Supervisors, and the OCC as a response to those affected by Hurricane Irma. The newest release, FIL-46-2017, announced regulatory relief for financial institutions affected by Hurricane Maria, and steps to facilitate recovery in affected areas, which include: (i) “extending repayment terms, restructuring existing loans, or easing terms for new loans,” and (i) “encourage[ing] depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.” Further, banks that support disaster recovery efforts, the FDIC noted, may receive favorable Community Reinvestment Act consideration.
SEC. On September 28, the SEC issued an order providing regulatory relief to companies and individuals with federal securities law obligations who have been affected by recent natural disasters. The order provides conditional exemptions to certain securities laws requirements for specified periods of time. The Commission additionally adopted “interim final temporary rules” applicable to Regulation Crowdfunding and Regulation A filing deadline extensions.
Financial Crimes Enforcement Network (FinCEN). On October 3, FinCEN issued a notice to financial institutions that file Bank Secrecy Act reports to encourage communication with FinCEN and their functional regulator regarding any expected filing delays caused by recent hurricanes.
CFPB Publishes Updated Reference Material for HMDA
On September 28, the CFPB released, on its website, updates to the reference material for the Home Mortgage Disclosure Act (HMDA). The Bureau updated the, (i) institutional coverage criteria; (ii) transactional coverage criteria; and (iii) key dates timeline.
These updates are associated with the changes, previously reported in InfoBytes, that the CFPB made in the 2017 HMDA final rule.
Financial Industry Groups Sue the CFPB Over Arbitration Rule
On September 29, the U.S. Chamber of Commerce (Chamber) and other financial industry groups joined together to file a lawsuit in a Texas District Court against the CFPB over the constitutionality and legality of the Bureau’s arbitration rule (rule). The complaint alleges four reasons why the rule is invalid and should be set aside:
- the rule is a product of the unconstitutional structure of the CFPB – as covered in a previous InfoBytes, a similar argument is being heard in the U.S. Court of Appeals for the D.C. Circuit in the case brought by PHH;
- the CFPB failed to follow procedures in the Administrative Procedures Act (APA) in adopting the conclusions of a flawed arbitration study. Specifically, the complaint alleges that the study improperly limited public participation, applied flawed methodologies, misunderstood relevant data, and did not address key considerations;
- the rule is a model of arbitrary and capricious agency action because it fails to take into account important aspects of the problem it is attempting to address and runs counter to the record before the Bureau; and
- the rule is a violation of the Dodd Frank Act because it fails to advance the public interest or consumer welfare.
Currently, the rule is also under scrutiny by Congress. As previously discussed in InfoBytes, the House passed a disapproval resolution, under the Congressional Review Act, to repeal the rule. A similar measure is set for discussion in the Senate.
Buckley Sandler will follow up with a more detailed summary of the lawsuit.
Senate Judiciary Tech Subcommittee to Hold Hearing on Data Breach; New Credit Reporting Agency CEO Speaks Out
On September 27, interim CEO, Paulino do Rego Barros Jr., spoke out for the first time since a major credit reporting agency (agency) appointed him to the role the previous day. In addition to issuing an apology, Barros stated that the agency is extending the deadline to sign up for their credit monitoring services and free credit freezes through the end of January 2018. He also made the commitment that by January 31, the agency will offer a new service for consumers to control access to their personal credit data. As previously reported in InfoBytes, the agency is still in the process of responding to the data breach that impacted approximately 143 million U.S. consumers.
On October 4, the Senate Judiciary Subcommittee on Privacy, Technology and the Law will hold a hearing on the agency’s data breach to continue to monitor data-broker cybersecurity. The hearing is scheduled for 2:30 pm in the Dirksen Senate Office Building 226.
CFPB Issues Consent Order for Steering to Real Estate Settlement Services Provider
On September 27, the CFPB issued a consent order against a real estate settlement services provider for allegedly steering consumers to a title insurer owned in part by three of its executives without disclosing its affiliated business interests, as required by RESPA. According to the consent order, the company received money “beyond the commission it would normally have been entitled to collect” due to an agreement or understanding that it would refer its business to the title insurer, but it did not make the disclosures of the affiliate relationships required by RESPA to over 7,000 consumers. The CFPB’s order requires the company to pay up to $1.25 million in redress to affected consumers and to implement policies and procedures to ensure proper disclosure of applicable referrals to consumers in the future.
DOJ Obtains Auto Repossession Settlement for Servicemembers
On September 27, the DOJ announced a settlement with a California-based indirect auto financing company and its subsidiary responsible for extending auto title loans (defendants) resolving allegations that the defendants violated the Servicemembers Civil Relief Act (SCRA) by illegally repossessing at least 70 SCRA-protected servicemembers’ vehicles. The DOJ filed its complaint against the defendants in the U.S. District Court for the Central District of California the same day the settlement agreement was reached. This is the second DOJ settlement reached this month over alleged SCRA violations concerning auto repossessions. (See previous InfoBytes summary here.) According to the complaint, the CFPB’s Office of Servicemember Affairs alerted the DOJ in 2016 to the alleged unlawful vehicle repossessions. The DOJ’s investigation concluded that the defendants repossessed the vehicles between 2011 and 2016, without confirming whether the servicemembers were SCRA-protected or obtaining court orders. The defendants’ practice of violating the SCRA, the DOJ contends, was “intentional, willful, and taken in disregard for the rights of servicemembers.”
Under the terms of the settlement agreement, the defendants must comply with the following: (i) obtain a court order or “valid SCRA waiver” in compliance with the outlined terms of the agreement before repossessing servicemember vehicles; (ii) develop a set of SCRA policies and procedures that outline repossession compliance measures and another set of policies and procedures to provide SCRA relief; (iii) appoint SCRA-specialized employees; and (iv) provide SCRA compliance training. The defendants must also compensate affected servicemembers $700,000, in addition to “lost equity,” accrued interest, credit repair relief, and an auto loan interest rate cap for eligible servicemembers. Further, the defendants must pay a civil penalty of $60,788 to the Treasury, and provide a list of repossessions between October 2016 and the effective date of the settlement to be reviewed by the DOJ for additional SCRA-violations.
NYDFS Announces Settlement to Provide Restitution and Loan Forgiveness to Consumers Affected by Payday Lending Practices
On September 25, New York Department of Financial Services (NYDFS) Superintendent Maria T. Vullo announced the Department had entered into a consent order with a payday loan debt collector and payday loan servicer (together, “defendants”) for allegedly collecting on illegal payday loans made to New York consumers between 2011 to 2014. Payday lending, according to NYDFS’ press release, is illegal in the state, and debt collectors who “collect or attempt to collect outstanding payments from New Yorkers on payday loans violate debt collection laws.” The consent order notes that in 2013, NYDFS circulated a guidance letter to all debt collectors operating in the state to remind them that usurious loans made by non-bank lenders with interest rates exceeding the statutory maximum—and the attempts to collect debts on these types of loans—are “void and unenforceable and violate state and federal law.” However, one of the defendants continued to collect on payday loans for more than a year. The alleged actions, NYDFS asserted, are violations of the Fair Debt Collection Procedures Act, New York Debt Collection Procedures Law, and New York General Business Law.
Pursuant to the consent order, which includes a notice letter to be sent to affected consumers, the debt collector defendant must comply with the following: (i) cease all collection on payday loans in New York; (ii) release and discharge more than $11.8 million in outstanding applicable payday loan debts; (iii) move to vacate any judgments obtained on payday loan accounts; and (iv) “[r]elease any pending garnishments, levies, liens, restraining notices, or attachments relating to any judgments on New Yorkers’ payday loan accounts.” The loan servicer defendant must close any pending accounts in the state and cease communications with consumers regarding their accounts.
FTC Launches Military Task Force Website, CFPB Blog Post Discusses Servicemember Debt Collection Rights
On September 25, the FTC launched a new website to showcase the work of the agency’s Military Task Force. The Military Task Force identifies the needs of military consumers and their families and develops initiatives such as workshops that examine financial issues and scams more likely to affect military consumers or training for military attorneys, law enforcement personnel, and financial advisors. (See previous InfoBytes summaries here and here.) The FTC reported in a press release that in 2016, servicemembers, their dependents, military retirees, and veterans submitted more than 100,000 consumer complaints, with retirees and veterans comprising approximately two-thirds of the complaints. The top complaints were imposter scams, identity theft, and debt collection. The new webpage includes links to resources for servicemembers and veterans, workshops, related FTC cases and other initiatives, and congressional testimony.
On September 22, the CFPB published a blog post to discuss servicemembers’ debt collection rights and resources. According to the Bureau, as of August 1, 41 percent of servicemember complaints were related to debt collection, as compared to 26 percent of non-servicemember complaints. The Fair Debt Collection Practices Act (FDCPA) protects servicemembers from debt collectors who use abusive, unfair, or deceptive practices to collect debts, but according to the Bureau, some military consumers claim they have received threats from debt collectors stating that they will report the debt to their commanding officer, have their rank reduced, or put their security clearance up for review. As the post notes, making false threats or disclosing debts to third parties without permission are violations of the FDCPA.