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CFPB files proposed consent order banning certain Canadian and Maltese payday lenders from U.S. consumer lending
On February 1, the CFPB and a group of payday lenders, including individuals and corporate officials based in Canada and Malta (collectively, “defendants”), filed a proposed consent order with the U.S. District Court for the Southern District of New York that would resolve allegations that the defendants violated the Consumer Financial Protection Act. According to the Bureau’s press release, the defendants allegedly (i) misrepresented to consumers an obligation to repay loan amounts that were voided because the loan violated state licensing or usury laws; (ii) misrepresented that loan agreements were not subject to federal or state laws; (iii) misrepresented that non-payment would result in lawsuits, arrests, imprisonment, or wage garnishment; and (iv) conditioned loan agreements upon irrevocable wage assignment clauses. Under the terms of the proposed order, the defendants would be, among other things, (i) permanently banned from consumer lending in the U.S.; (ii) permanently restrained from the collection or sale of existing U.S. consumer debts; and (iii) subject to certain reporting and recordkeeping requirements. The proposed order does not impose a fine on the defendants.
On January 22, the Connecticut Governor signed HB 5765 to allow essential and nonessential federal employees, who are otherwise ineligible to receive unemployment assistance, to apply for zero-interest bank loans of up to $5,000 while the government remains shut down. Federal employees may be eligible for more if the partial government shutdown extends for a longer period. Under the new program, the loans have a 90-day grace period in which banks may not require repayment or charge interest on principal. The grace period begins when the affected employee’s federal agency is funded and is followed by a 180-day repayment period. Among other things, HB 5765 permits municipalities to defer property tax payments from impacted federal employees based on outlined eligibility criteria. According to a press release issued by the Governor, the coordination—where loans will be backed by the state—marks the first public-private partnership in the nation between a state and private banks and credit unions. The act takes effect immediately.
On January 4, the administrator of the Colorado Uniform Consumer Credit Code issued a memo providing introductory guidance on alternative charge loans in response to Proposition 111, which amends the state’s Deferred Deposit Loan Act (DDLA) and takes effect February 1. (See previous InfoBytes coverage here.) Among other things, Proposition 111 reduces the maximum annual percentage rate that may be charged on deferred deposits or payday loans to 36 percent, eliminates an alternative APR formula based on loan amount, prohibits lenders from charging origination and monthly maintenance fees, and amends the definition of an unfair or deceptive practice.
The memo—issued in response to creditors currently offering loans under the DDLA who have expressed an interest in offering loans imposing the alternative charges allowed by Colo. Rev. Stat. § 5-2-214—explains that such alternative charges may only be charged if (i) the financed amount is $1000 or less; (ii) the minimum loan term is at least 90 days but no more than 12 months; (iii) installment payments are scheduled in substantially equal periodic intervals; (iv) Truth-In-Lending disclosures show the loan is unsecured; (v) a creditor has not taken any collateral as security for the loan, including a post-dated check or certain ACH authorization; (vi) an ACH agreement reached with a consumer is voluntary and not required by the loan; and (vii) the loan has not been refinanced more than three times in one year.
Washington State Department of Financial Institutions adopts amendments concerning student education loan servicers
On December 3, the Washington State Department of Financial Institutions (DFI) issued a final rule adopting amendments including student education loan servicing and servicers as activities and persons regulated under the state’s Consumer Loan Act. According to DFI, the amendments will provide consumers with student education loans a number of consumer protections and allow DFI to monitor servicers’ activities. Among other things, the amendments (i) change the definition of a “borrower” to include consumers with student education loans; (ii) specify that collection agencies and attorneys licensed in the state collecting student education loans in default do not qualify as student education loan servicers; and (iii) stipulate that businesses must either qualify for specific exemptions or possess a consumer loan license in order to lend money, extend credit, or service student education loans. In addition, the amendments provide new requirements for servicers concerning the acquisition, transfer, or sale of servicing activities, and specify borrower notification rights. Servicers who engage in these activities for federal student education loans in compliance with the Department of Education’s contractual requirements are exempt.
The amendments take effect January 1, 2019.
FTC settles with one student loan debt relief operation; seeks separate permanent injunction against another
On November 20, the FTC announced a settlement with operators of a student loan debt relief operation to resolve allegations that the defendants defrauded consumers through programs offering mortgage assistance and student debt relief. Regarding the student debt operations, the FTC alleged that the defendants falsely offered student borrowers reduced monthly payments or loan forgiveness by falsely claiming to be affiliated with the Department of Education. In a 2017 complaint, the FTC alleged that the defendants also falsely promised foreclosure prevention and mortgage relief to distressed homeowners, but instead collected advance fees in violation of the Telemarketing Sales Rule (TSR) and the Mortgage Assistance Relief Services Rule. Among other things, the settlement includes a judgment of more than $9 million—which will be partially suspended once the defendants turn over all assets worth approximately $305,000 because of their inability to pay—and bans the defendants from participating in debt relief and telemarketing activities in the future.
The same day, the FTC also announced it was charging a separate student loan debt relief operation with violations of the FTC Act and the TSR for allegedly engaging in deceptive practices when marketing and selling their debt relief services. According to the complaint, the operators of the scheme—which include a recidivist scammer previously banned from participating in debt relief activities—allegedly “promoted a 96 percent success rate in reducing consumers’ student loan payments.” However, the FTC stated that consumers who purchased the debt relief services and often paid illegal upfront fees “often did not receive any debt relief and lost hundreds of dollars.” On November 13, the U.S. District Court for the Central District of California issued a temporary restraining order and asset freeze at the FTC’s request. The FTC seeks a permanent injunction against the defendants to prevent future violations, as well as redress for injured consumers through “rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”
On November 6, Colorado voters approved a ballot initiative (officially referred to as Proposition 111) to reduce the maximum annual percentage rate that may be charged on deferred deposits or payday loans to 36 percent. In addition, Proposition 111 eliminates an alternative APR formula based on loan amount, prohibits lenders from charging origination and monthly maintenance fees, and amends the definition of an unfair or deceptive practice. The measure takes effect February 1, 2019.
Court orders judgement in favor of defendants in FCRA action based on limitations of Wisconsin “alternative-to-bankruptcy” statute
On October 26, the U.S. District Court for the Eastern District of Wisconsin denied a plaintiff’s motion for summary judgment and instead entered judgement in favor of two creditors and two consumer reporting agencies (collectively, “defendants”), holding that the debtor failed to show a factual inaccuracy in the credit reporting of a debt. According to the opinion, the debtor successfully completed an amortization plan under Section 128.21 of the Wisconsin Statues, an “alternative to bankruptcy” law that allows debtors to file an action that establishes “a personal receivership wherein, much like in a federal Chapter 13 ‘wage earners’ bankruptcy, a person may amortize problem debts through a deliberate and scheduled repayment plan.” Subsequently, the debtor submitted disputes to two consumer reporting agencies that still showed balances due on the credit lines for both creditors. In response, the creditors argued that the debtor understated the balances owed to them during the Section 128.21 proceeding and as a result, a balance still existed. The debtor filed suit against the defendants alleging multiple violations of the FCRA. In response, the defendants argued that the state court order dismissing the debtor’s Section 128.21 action only covers the amount of the debt submitted by the debtor in the Section 128.21 proceeding and does not cover the interest and late charges the debtor failed to include in the claim. The district court agreed and dismissed the action, determining that the Wisconsin statute applies only to claims included in the plan and does not dismiss debts in their entirety. The court concluded, “as a result, unless and until a proper tribunal concludes the [Section 128.21] proceeding eliminated the debts in their entirety or that the plan precludes the accrual of post-filing interest and other penalties, [debtor] cannot establish the reported information is factually inaccurate,” and therefore, the debtor’s FCRA claims failed as a matter of law.
On November 8, the FTC announced that the U.S. District Court for the District of Maryland has granted a temporary restraining order against the operators of an international real estate investment development, which the FTC claims is the “largest overseas real estate investment scam [it] has ever targeted.” According to the FTC’s complaint, the defendants violated the FTC Act and the Telemarketing Sales Rule by advertising and selling parcels of land that were part of a luxury development in Belize through the use of deceptive tactics and claims. The FTC contends that consumers who purchased lots in the development purchased the lots outright or made large down payments and sizeable monthly payments, and paid monthly homeowners association fees, and that defendants used the money received from these payments to fund their “high-end lifestyles,” rather than to invest in the development. In addition, the FTC asserts that, while the defendants falsely promised consumers that their lots would include luxury amenities, be completed soon, and result in property values that would “rapidly appreciate,” “consumers either have lost, or will lose, some or all of their investments.” The FTC’s press release also announces the filing of charges against a Belizean bank for allegedly assisting and facilitating the investment scam, as well as contempt motions against several of the individual defendants. The FTC is seeking information from affected consumers.
On October 22, the Pennsylvania Attorney General announced a request for mortgage borrowers and home-loan applicants who believe they may be victims of redlining to file complaints with that office. The announcement states that the Attorney General is investigating evidence of redlining by financial institutions in Philadelphia neighborhoods where lenders either refused to make loans due to the applicant’s race or dissuaded minorities from applying for mortgage loans. The investigation is in response to an investigative article identifying a pattern of racial discrimination in mortgage lending in the Philadelphia area.
On October 23, the CFPB released its Complaint snapshot: 50 state report, which covers complaints received by the Bureau from January 2015 through June 2018. According to the report, the Bureau has received more complaints from consumers in California than any other state, followed by Florida and Texas. Other highlights of the report include: (i) issues related to credit reporting received the most complaints in 2017, comprising 31 percent of all submitted complaints; (ii) the Bureau averaged over 27,000 complaints per month from January 2017 through June 2018; and (iii) complaints about prepaid cards trended upward the beginning half of 2018, while student loan, payday loan, credit repair, and money transfer complaints all trended lower.
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer and Dan Ladd to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Tim Lange to discuss "Update from 2019 NMLS Conference" at the California Mortgage Bankers Association Mortgage Quality & Compliance Committee webinar
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program