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Financial Services Law Insights and Observations


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  • Illinois proposes rule to evaluate mortgage community reinvestment

    State Issues

    Recently, the Illinois Department of Financial and Professional Regulation issued a proposed rule pursuant to the Illinois Community Reinvestment Act (ILCRA). The ILCRA is modeled off the Community Reinvestment Act but expands its scope of covered financial institutions to include credit unions and licensed entities. The proposed rule will help the Department administer and enforce the ILCRA in an equitable manner. The rule establishes a framework and criteria by which the Department will evaluate a covered mortgage licensee’s record of helping to meet the mortgage credit needs of Illinois, including low- and moderate-income neighborhoods and individuals, through different tests and performance standards depending on the number of loans made by a covered mortgage licensee. Tests and considerations for evaluating licensees’ record include a lending test, service test, performance record, data collection and reporting, and content and recordkeeping of information received from the public.

    To mitigate the impact on small businesses, a licensee that has made less than 200 home mortgage loans in Illinois in the last calendar year will not be subject to the service test. Furthermore, licensees that made less than 100 home mortgage loans in Illinois in the previous calendar year will have less frequent examinations than those with more than 100. Based on the licensee’s performance under the lending and service tests, the proposed rule specifies that a licensee’s rating of “outstanding”; “satisfactory”; “needs to improve”; or “substantial noncompliance” will affect how frequent they are evaluated. Compliance with the proposed rule is required six months from its effective date, and comments are due by February 26. 

    State Issues Illinois Agency Rule-Making & Guidance Mortgage Origination CRA Consumer Finance

  • District Court denies stay of CFPB case against lender


    On January 12, the U.S. District Court for the Southern District of Florida denied a defendant-mortgage lender’s motion to stay a case filed by the CFPB. The defendant argued that judicial economy—the preservation of the court’s time and resources—favored the stay because the defendant’s pending motion to dismiss is premised on the same constitutional issue addressing the CFPB’s funding structure now before the Supreme Court (see continuing InfoBytes coverage here and here). In opposition, the CFPB argued that the Supreme Court may take months to issue a ruling, the public interest in enforcement of consumer protection laws, and the failure to show how an adverse ruling in the Supreme Court case would definitively result in dismissal of this case.

    The District Court sided with the CFPB, stating that as of now, the CFPB “is a valid agency that is entitled to enforce the consumer financial laws.”  With the stay denied, the court will now consider the defendant’s motion to dismiss.    

    Courts CFPB Mortgage Origination Mortgages Consumer Finance Consumer Protection Constitution

  • New York State floats BNPL legislation in FY 2025 budget

    State Issues

    On January 14, New York proposed its FY 2025 budget: Transportation, Economic Development and Environmental Conservation Article VII Bill, which includes an article, cited as the “Buy Now Pay Later Act” (the “Act”). The Act includes new licensing provisions, requiring buy now pay later (BNPL) financing providers (referred to as “lenders” within the Act) to pay a fee and file a written application to receive a license in order to provide BNPL loans. BNPL lenders would also be required to submit an affidavit of financial solvency, disclose their license on their website, app, or other consumer interface, and list the license in the terms and conditions of any BNPL loan offered and entered by the licensee. Licensees would also be subject to supervisory investigations. The Act would further require BNPL lenders to (i) maintain policies for ensuring the accuracy of data that may be reported to credit agencies; (ii) disclose certain loan terms; (iii) engage in limited ability-to-repay analyses; (iv) refrain from charging unfair, abusive, or excessive fees; and (v) abide by certain restrictions and disclosure requirements relating to the use of consumer data, among other things.

    State Issues BNPL New York Consumer Finance Licensing

  • Bank to pay $1.9 million to resolve redlining suit

    Federal Issues

    On January 17, the DOJ announced a $1.9 million settlement with a national bank resolving allegations that the bank engaged in unlawful redlining in Memphis, Tennessee by intentionally not providing home loans and mortgage services to majority-Black and Hispanic neighborhoods, thereby violating the Fair Housing Act, ECOA, and Regulation B. In the complaint, the DOJ alleged that from 2015 through at least 2020, the bank (i) concentrated marketing and maintained nearly all its branches in majority-white neighborhoods; (ii) was aware of its redlining risk and failed to address said risk; (iii) generated disproportionately low numbers of loan applications and home loans during the relevant period from majority-Black and Hispanic neighborhoods in Memphis, compared to similarly-situated lenders; (iv) maintained practices that denied equal access to home loans for those in majority-Black and Hispanic neighborhoods, and otherwise “discouraged” those individuals from applying; and others.

    Under the consent order, which is subject to court approval, the bank will, among other things, invest $1.3 million in a loan subsidy fund to enhance home mortgage, home improvement, and home refinancing access in the specified neighborhoods. The bank will also allocate $375,000 in advertising, outreach, and financial counseling to specified neighborhoods, and allocate $225,000 to community partnerships for services boosting residential mortgage credit access in the specified areas. Additionally, the bank will assign at least two mortgage loan officers to serve majority-Black and Hispanic neighborhoods in the bank’s service area and appoint a Director of Community Lending who will oversee the continued development of lending in communities of color. 

    Federal Issues DOJ Consumer Finance Mortgages Redlining Discrimination Consent Order ECOA Regulation B Fair Housing Act Tennessee Fair Lending

  • DFPI fines online platform for omitting convenience fee disclosures

    State Issues

    On January 9, DFPI issued a consent order against an online platform (respondent) that enables merchants to provide installment contracts to customers. The consent order resolved alleged violations of the California Consumer Financial Protection Law (CCFPL) arising from the convenience fees assessed by a third-party service provider when consumers opt to pay their installments online or by phone. According to the consent order, since 2021 respondent guaranteed that consumers entering into contracts on its platform had a fee-free payment method. However, for a time respondent failed to disclose potential optional convenience fees in the initial contract. Although the third-party servicer disclosed the convenience fees to consumers, DFPI took issue with the respondent’s failure to disclose these fees before transferring consumers to the third-party servicer to enter into the contracts. In other words, consumers only became aware of both the existence and amounts of these fees after entering into contractual obligations. DFPI accused respondent of deceiving consumers by failing to disclose this information first.

    Under the terms of the consent order, respondent must pay a $50,000 penalty and must disclose information about the potential convenience fees that may be assessed by a servicer.

    State Issues California DFPI CCFPL Enforcement Disclosures Third-Party Consumer Finance

  • Idaho Department of Finance publishes proposed rule changes on its Mortgage Practices Act

    On January 3, the Idaho Department of Finance published a bulletin on proposed rule changes to Vol. 23-10 of the Idaho Administrative Bulletin, specifically to section 12.01.10 – Rules Pursuant to The Idaho Residential Mortgage Practices Act; a redline of the bill’s section changes is here. According to the bill, the rule changes aim to “reduce regulatory burden by removing outdated requirements,” and the rulemaking changes were made pursuant to Executive Order 2020-01.

    There were several changes to the bill. First, the section on “Deceptive Advertising” was struck from the bill. Second, and under “Written Disclosures,” the portion on “Receipt of an Application” was struck from the bill. Third, and under “Prohibited Practices” and further under “Engage in Deceptive Advertising,” the proposed changes include the addition of two subsections: one on engaging in bait and switch advertising; and another on misleading someone to believe a solicitation is from a person’s current mortgage holder, or government agency, among others. Fourth, the section on “Borrowers Unable to Obtain Loans” was struck entirely.

    Licensing Consumer Finance Mortgages

  • New York Governor highlights NYDFS in 2024 State of the State proposal

    State Issues

    On January 2, New York Governor Kathy Hochul revealed a proposed plan focused on consumer protection and affordability as the initial part of the Governor’s 2024 State of the State address. The plan includes changes to New York’s consumer protection laws, regulations for buy now pay later products, increased paid medical and disability leave benefits, measures to eliminate co-pays for insulin in specific insurance plans, and legislation addressing medical debt.

    Changes to consumer protection laws would give the Attorney General more power to enforce the laws and help the state to address unfair and abusive business practices. Additionally, proposed legislation would require buy now pay later providers to obtain licenses and introduce regulations focusing on disclosure, dispute resolution, credit standards, fee limits, data privacy, and preventing excessive debt.

    NYDFS also detailed Governor Hochul’s plan to update and broaden New York’s hospital financial assistance law to provide increased protection against medical debt. The proposed legislation aims to limit hospitals’ ability to sue low-income patients (earning less than 400 percent of the Federal Poverty Level) for medical debt and expand financial assistance programs. It also seeks to cap monthly payments and interest rates on medical debt while enhancing access to financial aid. This consumer protection and affordability plan builds on Governor Hochul and her administration’s efforts to make New York more affordable and livable.

    State Issues NYDFS New York Consumer Protection Medical Debt Consumer Finance Buy Now Pay Later Unfair

  • Washington Appeals Court overturns ruling for collector


    On December 26, 2023, the Court of Appeals of the State of Washington overturned a ruling in favor of a collection agency. In the initial action, the collection agency sued an individual over a medical debt that was assigned to the agency. The individual filed counterclaims against the collection agency alleging violations of the Washington Consumer Protection Act (CPA), the Washington Collection Agency Act (CAA), and the FDCPA. Each counterclaim centered on the legitimacy of the debt owed since the individual had not been screened for charity care as required by law. The individual was granted charity care that assisted with paying 75 percent of the owed debt and the collection agency accepted the payment. Later, the collection agency sought to enforce a supposed settlement agreement. The trial court granted the collection agency’s motion for summary judgment and dismissed the individual’s counterclaims and denied the collection agency’s motion to enforce settlement. As a result, the dismissal of the individual’s counterclaims was reversed, the denial of the collection agency’s motion to enforce the settlement agreement was upheld, and the case was sent back to the trial court for further proceedings in line with the court's findings.

    Courts FDCPA Appellate Debt Collection Consumer Finance

  • CFPB, DOJ sue developer over predatory lending

    Federal Issues

    On December 20, the CFPB and the DOJ issued a press release announcing the filing of a complaint against four affiliated Texas-based entities (collectively, the “developer”) alleging bait-and-switch land sales and predatory financing. The agencies claim the developer violated ECOA and FHA by targeting thousands of Spanish-speaking borrowers with predatory seller financing. The complaint also alleges the developer misrepresented or omitted material information regarding the seller-financed flood-prone lots having “the infrastructure necessary to connect water, sewer, and electrical services pre-installed,” and regarding flood risk. The complaint also claims that the developer did not provide purchasers with a property report before the purchaser entered into the subject agreement. Further, according to the complaint, the developer marketed the lots primarily in Spanish, but required borrowers to sign important transactional documents written in English only. The action also includes claims brought under other laws and regulations. Notably, this is the first federal court lawsuit the CFPB has brought under the Interstate Land Sales Full Disclosure Act of 1968 (ILSA).

    Federal Issues DOJ CFPB Consumer Finance Consumer Protection Texas Enforcement

  • CFPB posts blog entry analyzing cash-out refinancing

    Federal Issues

    On December 18, the CFPB posted a blog entry regarding cash-out refinance mortgages and their borrowers between 2013 to 2023. According to the entry, which noted reflects the authors’ views, and not those of the CFPB, refinance mortgage originations decreased amid 2022’s rapid interest rate hikes, and notably favored cash-out refinances over non-cash-out options. Cash-out refinances involve borrowing significantly more than the amount owed on an existing mortgage, often used for diverse purposes like debt settlement or home improvements. Despite reduced volumes due to rising rates, the post noted that cash-out refinances are “worth monitoring” since they were considered one of the factors that contributed to the 2008 financial crisis.

    Analyzing loans from 2013 to 2023 from data in the National Mortgage Database, the blog entry revealed some insights into delinquencies. Some of the findings include: (i) cash-out refinances held a larger share of all refinances when interest rates rose; (ii) borrowers opting for cash-out refinances typically had lower income and lower credit scores compared to those pursuing different refinancing avenues; (iii) borrowers with stronger credit scores showed minimal serious delinquencies irrespective of the refinancing type; and (iv) borrowers with lower credit scores showed similar two-year delinquency rates for both cash-out and non-cash-out refinancing, except for borrowers in 2017, a year marked by rising interest rates and lower credit scores for cash-out borrowers.  Based on this last finding, the blog post noted that there may be increased delinquencies among cash-out refinances originated in 2022, a year with similar interest rate increases and decrease in cash-out borrowers’ credit score.

    Federal Issues CFPB Cash-Out Refinance Refinance Consumer Finance Mortgages


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