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  • FDIC releases July enforcement actions

    On August 26, the FDIC released a list of administrative enforcement actions taken against banks and individuals in July. During the month, the FDIC issued seven orders consisting of “two orders of prohibition, two orders to pay civil money penalty, two section 19 orders, and one order terminating consent order.” Among the actions is an order to pay a civil money penalty imposed against an Iowa-based bank related to alleged violations of the Flood Disaster Protection Act (FDPA) and the National Flood Insurance Act of 1968. Among other things, the FDIC claimed that the bank: (i) “made, increased, extended, or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without requiring that the collateral be covered by flood insurance”; (ii) “made, increased, extended or renewed loans secured by a building or mobile home located or to be located in a special flood hazard area without providing timely notice to the borrower as to whether flood insurance was available for the collateral”; and (iii) “failed to comply with proper procedures for force-placing flood insurance in instances where the collateral was not covered by flood insurance at some time during the term of the loan.” The order requires the payment of a $2,500 civil money penalty. The actions also include a civil money penalty imposed against a Texas-based bank related to six alleged violations of the FDPA for “failure to obtain flood insurance or obtain an adequate amount of insurance coverage, at or before loan origination, for all structures in a flood zone, including multiple structures,” among other alleged violations. The order requires the payment of a $6,000 civil money penalty.

    Bank Regulatory Federal Issues Enforcement FDIC Flood Insurance Mortgages National Flood Insurance Act Flood Disaster Protection Act Consumer Finance

  • Federal government directs agencies to eliminate medical debt as an indicator of creditworthiness

    Federal Issues

    On August 25, the Director of the Office of Management and Budget (OMB) issued a memo directing “agencies with direct loan and loan guarantee programs that focus on consumer loans or small and medium businesses where a consumer’s credit history is a factor, to whenever possible and consistent with the law take actions to reduce the impact of medical debt in the underwriting of Federal credit programs.” Although OMB recognized that some agencies such as the Department Veterans Affairs and the CFPB have already taken some steps to lessen medical debt burdens, it found that these prior efforts have been insufficient. Instead, the memo stresses that “[t]he collective efforts of the Federal Government, working with the private sector” are necessary to “remedy the impact of the issue of medical debt as an indicator for creditworthiness.” The memo outlines guidance for agencies to develop a plan to eliminate medical debt as a factor for underwriting in credit programs. These steps include (i) “[i]dentifying any statutory, regulatory, or administrative changes that would be required to modify criteria and consideration factors, exclude medical debt, or otherwise lessen the impact of medical debt consideration or underwriting in Federal lending programs”; (ii) conducting an “[i]nitial qualitative assessment and cost-benefit analysis of any statutory or regulatory changes” or any anticipated changes; (iii) conducting an “[a]ssessment of whether model updates are required for FCRA cost estimation, especially if the exclusion of medical debt would explicitly or implicitly affect particular underwriting requirements such as debt-to-income ratios, etc.”; and (iv) incorporating stakeholder input and assessing known risks that may impact an agency’s goal of achieving its plan.

    Federal Issues Medical Debt Consumer Finance OMB Underwriting Department of Veterans Affairs CFPB

  • Colorado reminds collection agencies about medical law

    State Issues

    On August 16, the Colorado attorney general published a memorandum reminding collection agency licensees and interested parties that HB21-1198 becomes effective September 1. HB21-1198, among other things, amends the Colorado Fair Debt Collection Practices Act to add a new unfair practice—attempting to collect a debt that violates certain HB21-1198 requirements. The bill also creates requirements for notice and certain limitations on collections of medical debt. Specifically, the bill enacts healthcare billing requirements for indigent patients who are treated, but not reimbursed, through the state’s indigent care program and sets forth requirements before any collection proceeding may be initiated against an indigent patient. 

    State Issues State Attorney General Colorado Medical Debt Debt Collection Licensing Consumer Finance

  • Court grants summary judgment in payday lender suit

    Courts

    On August 23, a Municipal Court in Ohio granted a defendant’s motion for summary judgment in a case involving payday lending. According to the order, the plaintiff’s complaint alleged that the defendant, in April 2019, executed a Line of Credit and Security Agreement with a lender in the amount of $1,101, and agreed to repay amounts advanced within a 30-day billing cycle pursuant to certain fees and a 24.99 percent interest rate. The complaint further alleged that defendant failed to make timely payment, and thereafter plaintiff, as assignee of the lender, sought to enforce the agreement. In her answer, the defendant denied entering any such agreement and characterized the transaction as “a $500 loan,” asserting that this case “involves an illegal scheme by [the short-term cash lender, the mortgage lender, and the plaintiff] to issue and collect illegal payday loans under a scheme to attempt to evade compliance with new state lending laws. The plaintiff asserted counterclaims for violations of the Short-Term Loan Act, the Mortgage Loan Act, Ohio Consumer Sales Practices Act, and for civil conspiracy.

    On motion for summary judgment, the defendant argued that she was entitled to judgment on “Plaintiff's complaint because the parties’ April 2019 agreement ‘is void because it was made in violation of Ohio lending and consumer laws.’” The defendant presented two arguments: (i) the lender is not licensed under the Short-Term Loan Act to issue a loan less than $1000; and (ii) the lender is “prohibited from engaging in acts or practices to evade the prohibition against Mortgage Loan Act registrants issuing loans for $1,000 or less or that have a duration of one year or less.”

    In granting summary judgment for the defendant, the court found that the underlying transaction was an “open-end loan under the plain language” of the Mortgage Loan Act, and that it was not a loan for $1,000 or less or one with a duration of one year or less under the Mortgage Loan Act, but that by using the security agreement framework, the lender engaged in an act or practice to evade the Mortgage Loan Act’s prohibition. The court found that the evidence showed defendant went to the lender for a simple loan under $1,000 and was provided on that day a check for $501. The court found further that, “it would appear [the lender] gave Defendant what she was seeking, namely a short-term loan … but without complying with any of the myriad restrictions applicable to such loans under the Short-Term Loan Act.” The court held that the security agreement framework did not stand because the “legally convoluted” structure did not benefit the parties in any meaningful way, and “the only explanation the Court can discern as to why that structure was used is that it was a stratagem for eluding the restrictions of the Short-Term Loan Act that would have otherwise applied to the parties’ transaction.”

    Courts State Issues Ohio Payday Lending Mortgages Consumer Finance

  • Biden announces student debt cancellation

    Federal Issues

    On August 24, President Biden announced a three-part plan for student loan relief. According to the Fact Sheet, the cumulative federal student loan debt is around $1.6 trillion and rising for more than 45 million borrowers. The President announced that the Department of Education (DOE) will, among other things: (i) provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE; (ii) provide up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples; (iii) propose a new income-driven repayment plan and cap monthly payments for undergraduate loans at 5 percent of a borrower’s discretionary income; and (iv) “propos[e] a rule that borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government, receive appropriate credit toward loan forgiveness.” For income-driven repayment, Biden announced that the DOE is proposing a rule to, among other things: (i) reduce to 5 percent from 10 percent the amount that borrowers have to pay each month for undergraduate loans; (ii) guarantee that borrowers making less than 225 percent of the federal minimum wage are not required to make payments on their federal undergraduate loans; (iii) forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less; and (iv) cover the borrower’s unpaid monthly interest so that no borrower’s loan balance will grow when making monthly payments, “even when that monthly payment is $0 because their income is low.” The Fact Sheet also noted that if all borrowers claim the relief to which they are entitled under this plan, these actions “will [p]rovide relief to up to 43 million borrowers, including cancelling the full remaining balance for roughly 20 million borrowers,” will benefit primarily low- and -middle income borrowers, assist borrowers of all ages, and help narrow the racial wealth gap and promote equity by targeting those with the highest economic need.

    The same day, the DOE announced a final extension of the pause on student loan repayment, interest, and collections through December 31. As previously covered by InfoBytes, in April, Biden extended the moratorium on collecting student loans through August 31, about which the DOE stated will allow “all borrowers with the paused loans to receive a ‘fresh start’ on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing.”

    Earlier this week, the DOE announced that it will provide over $10 billion in debt relief for over 175,000 borrowers in 10 months through the Public Service Loan Forgiveness (PSLF) program. The recent announcement follows changes the DOE announced in October 2021 (covered by InfoBytes here) that, among other things, gave qualifying borrowers a time-limited PSLF waiver that allowed all payments to count towards PSLF regardless of loan program or payment plan. These include payments made on loans under the Federal Family Education Loan (FFEL) Program or Perkins Loan Program. The recently announced changes provide that student borrowers receive credit for payments made on loans from FFEL, Perkins Loan Program, and other federal student loans. To qualify for the program under the temporary changes, such borrowers must apply to consolidate their loans into a Direct Consolidation Loan by October 31. Additionally, the DOE announced that “under the temporary changes, past periods of repayment count whether or not borrowers were on a qualifying repayment plan or whether or not borrowers made payments.” To date, $32 billion in student loan relief has been approved for over 1.6 million borrowers.

    Federal Issues Department of Education Student Lending Biden Agency Rule-Making & Guidance Income-Driven Repayment Debt Cancellation Consumer Finance

  • CFPB finds relationship between medical care assistance and debt collections

    Federal Issues

    On August 24, the CFPB published a blog post exploring the connection between eligibility for financial assistance for medical care and the prevalence of medical collections. According to the Bureau, Americans spent $4.1 trillion on health care in 2020, and continue to incur significant medical expenses, despite private insurance coverage and government programs. The Bureau expects that number to reach $6.2 trillion by 2028. The Bureau found that as household incomes decrease, a higher percentage of consumers have medical collections. For example, the Bureau reported that of those with household earnings between $20,001 and $40,000 in 2018, consumers had at least one medical collection on their credit report. The Bureau also reported that among people in households with children and with incomes under $40,000, “38.1 percent had at least one medical collection on their credit report in December 2018,” which is approximately three times the rate for people without children earning the same amount. The Bureau noted that three nationwide credit reporting companies recently began removing paid medical collections from credit reports and will, starting in 2023, stop reporting medical collections below $500. However, the Bureau explained that many low-income consumers will not benefit from this change as their existing collections exceed $500, and therefore access to financial assistance continues to be important for such consumers. The Bureau concluded that more “research could explore the extent to which differences in legislative and regulatory environments influence the provision of financial assistance and lead to better financial outcomes for consumers.”

    The same day, the Bureau announced that Director Rohit Chopra will host a virtual discussion to explore challenges around nursing home debt collection practices and the impact they can have on financial wellbeing on September 8. According to the Bureau, the discussion “is a chance for the CFPB to listen and learn about consumer advocates’ and individuals’ experiences with nursing home debt and debt collection practices.”

    Federal Issues CFPB Consumer Finance Medical Debt Debt Collection

  • FTC will not extend comment period on NPRM seeking to ban auto lending junk fees and bait-and-switch tactics

    Agency Rule-Making & Guidance

    On August 23, the FTC issued a decision declining to extend the public comment period for its notice of proposed rulemaking (NPRM) to ban “junk fees” and “bait-and-switch” advertising tactics related to the sale, financing, and leasing of motor vehicles by dealers. As previously covered by InfoBytes, the NPRM seeks to prohibit dealers from making deceptive advertising claims to entice prospective car buyers and would also: (i) prohibit dealers from charging fees for “fraudulent add-on products” and services that—according to the FTC—do not benefit the consumer; (ii) require clear, written, and informed consent (including the price of the car without any optional add-ons); and (iii) require dealers to provide full, upfront disclosure of costs and conditions, including the true “offering price” (the full price for a vehicle minus only taxes and government fees), as well as any optional add-on fees and key financing terms. Dealers would also be required to maintain records of advertisements and customer transactions. In declining to extend the comment period, the FTC said the public has been afforded “a meaningful opportunity to provide the Commission with comments regarding its rulemaking proposal.” The comment period will end September 12.

    Agency Rule-Making & Guidance Federal Issues RTC Auto Finance Junk Fees Fees Disclosures Consumer Finance

  • Maryland orders debt-consolidation operation to pay more than $2 million in penalties and restitution

    State Issues

    On August 22, the Maryland attorney general issued a final order against a debt-consolidation operation, resolving allegations that the respondents collected hundreds of thousands of dollars from consumers to help them consolidate and pay off outstanding debt but failed to provide the promised services. According to the AG, the respondents deceptively promised that their services would save consumers money, allow consumers to pay off outstanding debts in a shorter timeframe than the original loan terms, and improve consumers’ credit scores. Consumers were charged upfront fees ranging from $11,000 to $118,000 for services plus additional amounts that were supposed to go toward paying off their outstanding debts. However, instead of providing the promised services, the respondents allegedly used most of the funds for their own personal use while consumers were threatened with foreclosure and had their cars repossessed. The final order permanently enjoins the respondents from violating the Maryland Consumer Protection Act, the Maryland Mortgage Assistance Relief Services Act, the Maryland Credit Services Business Act, and the Maryland Debt Management Services Act. The respondents are also required to pay a $1.2 million penalty and must refund all monies collected from consumers who did not receive the promised services. The AG estimates that total payments will exceed $2 million.

    State Issues State Attorney General Enforcement Maryland Debt Relief Consumer Finance

  • CFPB “on track” to issue Section 1071 rulemaking by March 31

    Federal Issues

    On August 22, the CFPB filed its tenth status report in the U.S. District Court for the Northern District of California, as required under a stipulated settlement reached in February 2020 with a group of plaintiffs, including the California Reinvestment Coalition, related to the collection of small business lending data. The settlement (covered by InfoBytes here) resolved a 2019 lawsuit that sought an order compelling the Bureau to issue a final rule implementing Section 1071 of the Dodd-Frank Act, which requires the Bureau to collect and disclose data on lending to women and minority-owned small businesses. The current status report states that the Bureau is on track to issue the Section 1071 final rule by March 31, 2023—a deadline established by court order in July (covered by InfoBytes here).

    Find continuing Section 1071 coverage here.

    Federal Issues Courts CFPB Dodd-Frank Section 1071 Small Business Lending Consumer Finance Agency Rule-Making & Guidance

  • Massachusetts reaches settlement with mortgage servicer over foreclosure practices

    State Issues

    On August 17, the Massachusetts attorney general announced that a national mortgage servicer must pay $3.2 million to resolve allegations that its mortgage servicing, debt collection, and foreclosure practices were unfair and deceptive. According to the assurance of discontinuance, the servicer allegedly violated Massachusetts’ Act Preventing Unlawful and Unnecessary Foreclosures by not providing notice and opportunity for borrowers to apply and be reviewed for loan modifications. Among other things, the servicer also allegedly placed debt collection calls exceeding the number of calls permitted by state law, did not inform borrowers of their right to request verification of the amount of their debt, unfairly charged foreclosure-related fees prior to obtaining authority to foreclose, and failed to send required debt validation notices. While the servicer denied the allegations, it agreed to pay borrowers $2.7 million in the form of principal forgiveness on eligible loans as well as a $500,000 fine. The servicer also agreed to “make significant changes” to its business practices.

    State Issues Enforcement Massachusetts State Attorney General Consumer Finance Foreclosure Debt Collection Mortgages Mortgage Servicing

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