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New York expands disclosure requirements for creditors and debt collectors
On October 8, the New York governor signed S737A, which requires creditors and debt collectors to clearly and conspicuously disclose to a debtor that communications are available in alternative formats. Among other things, the bill requires that creditors and debt collectors: (i) be assessed a civil penalty of up to $250 for violations of the law and up to $500 for each subsequent violation; and (ii) supply a phone number for consumers to request the letter in an alternative format. The bill also defines “communication,” “debt,” and “debt collector.”
Hawaii enacts installment loan provisions
Earlier this year, the Hawaii governor signed HB 1192, which amends certain provisions related to small dollar lending requirements. Specifically, the bill sets forth a new licensing requirement for “installment lenders” and specifies various consumer protection requirements. The bill defines installment lender broadly as “any person who is the business of offering or making a consumer loan, who arranges a consumer loan for a third party, or who acts as an agent for a third party, regardless of whether the third party is exempt from licensure under this chapter or whether approval, acceptance, or ratification by a third party is necessary to create a legal obligation for the third party, through any method including mail, telephone, the Internet, or any electronic means.” This language appears to capture loans offered under a bank partnership model under the purview of the new law.
Further, the bill: (i) caps installment loan amounts at $1,500, and restricts the total amount of changes to no more than 50 percent of the principal loan amount; (ii) limits monthly maintenance fees to between $25 and $35 depending on the installment loan’s original principal amount; (iii) stipulates that the minimum repayment term is two months for installment loans of $500 or less, or four months for loans of $500.01 or more; (iv) states that lenders must “accept prepayment in full or in part from a consumer prior to the loan due date and shall not charge the consumer a fee or penalty if the consumer opts to prepay the loan; provided that to make a prepayment, all past due interest and fees shall be paid first; (v) prohibits a consumer’s repayment obligations to be secured by a lien on real or personal property; (vi) prohibits lenders from requiring consumers to purchase add-on products such as credit insurance; (vii) provides that the maximum contracted repayment term of an installment loan is 12 months; (viii) caps the annual interest rate on installment loans at 36 percent; and (ix) states that any installment loan made without a required license is void (the collection, receipt, or retention of any principal, interest, fees, or other charges associated with a voided loan is prohibited).
The bill exempts certain financial institutions (e.g., banks, savings banks, savings and loan associations, depository and nondepository financial services loan companies, credit unions) from the installment lender licensing requirements.
The bill also repeals existing state law on deferred deposits. While HB 1192 became effective July 1, provisions related to the repeal of the existing law on deferred deposits and installment lender licensing requirements are effective January 1, 2022. License applications will be available via the Nationwide Multistate Licensing System.
CA governor signs legislation on money transmission website requirements
On October 4, the California governor signed AB 1320, which requires a licensee to supply a toll-free telephone number on its internet website so that a customer may contact the licensee for customer service issues and receive live customer assistance, in addition to displaying the days and times that the telephone line is operative. Among other things, the bill requires that a telephone number be included in the information contained in a receipt given to a customer at the time of a money transmission transaction. In addition, the bill specifies that the telephone line must be operative “at least 10 hours per day, Monday through Friday, excluding federal holidays.” The bill is effective July 1, 2022.
DFPI issues third round of draft regulations for commercial financing disclosures
On October 12, the California Department of Financial Protection and Innovation (DFPI) issued a third draft of proposed regulations implementing the requirements of the commercial financing disclosures required by SB 1235 (Chapter 1011, Statutes of 2018). As previously covered by InfoBytes, in 2018, California enacted SB 1235, which requires non-bank lenders and other finance companies to provide written consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances. In July 2019, California released the first draft of the proposed regulations, initiated the formal rulemaking process with the Office of Administrative Law in September 2020, and subsequently released a second round of modifications in August (covered by InfoBytes here, here, and here). The third modifications to the proposed regulations follow a consideration of public comments received on the various iterations of the proposed text. Among other things, the proposed modifications:
- Amend several terms including “approved advance limit,” “approved credit limit,” “at the time of extending a specific commercial financing offer,” “benchmark rate,” “broker,” “provider,” and “recipient funds.”
- Define the term “specific commercial financing offer” to mean a written communication to a recipient related to specific payment amounts and costs of financing, but does not include a recipient’s name, address, or general interest in financing.
- Amend certain disclosure requirements and thresholds, including specific circumstances that a provider can disregard when making calculations and disclosures.
- Clarify APR calculation requirements and tolerances and outline disclosure criteria for specifying the amount of financing used to pay down or pay off other amounts owed by a recipient.
- Amend duties and requirements for financers and brokers.
- Amend criteria for specifying the amount of funding a recipient will receive.
Comments on the third modifications must be received by October 27.
California enacts several consumer financial protection measures
Recently, the California governor enacted several state bills relating to consumer financial protection. On October 6, AB 790 was signed, which expands upon provisions of the Consumer Legal Remedies Act that relate to “home solicitations of a senior citizen where a loan encumbers the primary residence of the consumer for purposes of paying for home improvement.” Specifically, the bill extends the Act’s protections to cover loans for assessments under the Property Assessed Clean Energy (PACE) program, or certain provisions regulating PACE under the California Financing Law, such that violations would qualify as unfair methods of competition and unfair or deceptive acts or practices.
On October 6, AB 424 was signed, which enacts the Private Student Loan Collections Reform Act. The bill prohibits a private education lender or loan collector from making a written statement to a debtor attempting to collect a private education loan unless the private education lender or private education loan collector has certain related information to the debt and provides it to the debtor. In addition, among other things, the bill: (i) prohibits a private education lender or private education loan collector from bringing certain legal proceeding to collect a private education loan if the statute of limitations expired; (ii) creates a state-mandated local program by expanding the scope of the crime of perjury; and (iii) makes other provisions related to settlement agreements and payment notification requirements. The bill is effective July 1, 2022.
On October 4, AB 1221 was signed, which specifies that service contract requirements must include certain elements and cancellation policies. Among other things, the bill: (i) requires a service contract to include a clear description and identification of the covered product; (ii) makes a violation of certain provisions of the Electronic and Appliance Repair Dealer Registration Law a misdemeanor; and (iii) specifies “that a service contract may be offered on a month-to-month or other periodic basis and continue until canceled by the buyer or the service contractor and would require a service contract that continues until canceled by the buyer or service contractor to, among other things, disclose to the buyer in a clear and conspicuous manner that the service contract shall continue until canceled by the buyer or service contractor and provide a toll-free number, email address, postal address, and, if one exists, internet website the buyer can use to cancel the service contract.” In addition, by expanding the scope of the crime in violation of the Electronic and Appliance Repair Dealer Registration Law, the bill imposes a state-mandated local program. The law is effective January 1, 2022.
On October 4, AB 1405 was signed, which enacts the Fair Debt Settlement Practices Act. Among other things, the bill: (i) specifies that customers in a debt settlement plan have a window of three days to review disclosures prior to the contract taking effect; (ii) defines “debt settlement provider”; (iii) prohibits unfair, abusive, or deceptive acts or practices from a debt settlement provider and a payment processor when providing certain services; (iii) authorizes a consumer to terminate a contract for debt settlement services at any time without a fee or penalty of any sort by notifying the debt settlement provider; and (iv) authorizes a consumer to bring a civil action for violation.
Chopra sworn in as CFPB director
On October 12, Rohit Chopra was sworn in as Director of the CFPB. Chopra issued a message to Bureau staff, the Federal Reserve Board, FDIC Board of Directors, and members of the Financial Stability Oversight Council, applauding former acting Director Dave Uejio’s service and stressing the importance of safeguarding household financial stability. Chopra explained that promoting competition, shifting market power toward consumers and law-abiding businesses, and anticipating emerging risks remain critically important to the CFPB’s mission. Noting that this is an “extremely fragile moment for our economy and our country,” Chopra explained that the Covid-19 pandemic has “put into clearer focus the longstanding systemic and structural barriers we must overcome to build a more inclusive economy.” He added that he intends to “build on” the work Uejio has already started to address racial equality and the pandemic, and said Uejio will remain at the Bureau until he is confirmed as assistant secretary for Fair Housing & Equal Opportunity.
The CFPB also announced several leadership changes within the Bureau. Newly appointed Deputy Director Zixta Q. Martinez, whose roles at the Bureau previously included senior advisor for Supervision, Enforcement and Fair Lending, will oversee the Bureau’s Operations Division. Karen Andre, who most recently served as special assistant to the president for Economic Agency Personnel within the Executive Office of the President will serve as associate director for Consumer Education and External Affairs. Returning to the CFPB are Jan Singelmann who will serve as chief of staff. Singelmann previously served as senior litigation counsel in the Bureau’s Office of Enforcement and most recently served as counsel for Senator Sherrod Brown, whose work covers consumer finance and data privacy issues. Erie Meyer, who returns to serve as chief technologist, was previously on the implementation team that launched the Bureau and was a founding team member of the Bureau’s Office of Technology and Innovation.
NYDFS awards funds to support underserved communities
On October 7, NYDFS announced the first awards from the New York Community Development Financial Institution (CDFI) Fund to support access to safe and affordable banking services in historically underserved and redlined, low-income communities. According to the announcement, with a multi-year $25 million New York state-commitment, the CDFI Fund plans to allocate resources for the growth of CDFIs to assist in the delivery of affordable financial products and services and financial literacy programming to low- and moderate-income New York citizens. In addition, the CDFI Fund will expand “access to capital and technical assistance services for New York State small businesses and non-profit organizations.” In total, 31 CDFIs were selected to receive financial inclusion grants, which totaled nearly $5 million.
California authorizes prepaid accounts to accept publicly administered funds provided no overdraft fees
On October 5, the California governor signed SB 497, which, among other things, amends the definition of a “qualifying account” use for the purposes of depositing certain publicly administered funds. The amendment eliminates prepaid card accounts from the definition of “qualifying account,” and instead authorizes “a prepaid account or a demand deposit or savings account offered by or through an entity other than an insured depository financial institution, as specified, that is not attached to an automatic credit or overdraft feature, unless the credit or overdraft feature has no fee, charge, or cost, or it complies with the requirements for consumer credit under the federal Truth in Lending Act.” Specifically, persons or entities that are not insured depository financial institutions but who offer, maintain, or manage non-“qualifying accounts” are prohibited from soliciting, accepting, or facilitating the direct deposit of the publicly administered funds into the accounts.
CFPB issues semi-annual report to Congress
On October 8, the CFPB issued its semi-annual report to Congress covering the Bureau’s work from October 1, 2020 to March 31, 2021. The report, which is required by Dodd-Frank, addresses, among other things, the effects of the Covid-19 pandemic on consumer credit, significant rules and orders adopted by the Bureau, consumer complaints, and various supervisory and enforcement actions taken by the Bureau. In his opening letter, Director Dave Uejio discusses the Bureau’s efforts to increase racial equity in the marketplace and to mitigate the financial effects of the Covid-19 pandemic on consumers, including measures such as reinstituted regular public reporting, developing Prioritized Assessments to protect consumers from elevated risks of harm related to the pandemic, and numerous enforcement actions with claims or findings of various violations. Uejio also notes that communities of color, particularly Black and Hispanic communities, have disproportionately experienced the health and economic effects of the pandemic, and states that the Bureau is utilizing “all [of its] tools to ensure that all communities, of all races and economic backgrounds, can participate in and benefit from the nation’s economic recovery.”
Among other topics, the report highlights two publications by the Bureau: one focusing on the TRID Integrated Disclosure Rule (covered by InfoBytes here), and another focusing on credit record trends for young enlisted servicemembers during the first year after separation (covered by InfoBytes here). The effects of the Covid-19 pandemic on consumer credit are also discussed, as are the results from the Bureau’s Making Ends Meet Survey. In addition to these areas of focus, the report notes the issuance of several significant notices of proposed rulemaking related to remittance transfers, debt collection practices, the transition from LIBOR, and qualified mortgage definitions under TILA. Multiple final rules were also issued concerning Truth in Lending Act (Regulation Z); remittance transfers; and payday, vehicle, title, and certain high-cost installment loans. Several other rules and initiatives undertaken during the reporting period are also highlighted.
DFPI reports sharp decrease in consumer lending and PACE financing
On October 7, the Department of Financial Protection and Innovation (DFPI) released a report showing significant changes in consumer lending activity, likely attributable to a number of factors including the Covid-19 pandemic, state and federal financial assistance, student loan payment moratoriums, favorable interest rates, and increased reporting of alternative financing products. The 2020 annual report examined unaudited data gathered from finance lenders, brokers, and Property Assessed Clean Energy (PACE) administrators licensed under the California Financing Law, as well as new data from the “Buy Now, Pay Later” (BNPL) industry. Findings showed, among other things, a sharp decrease in certain types of consumer loans with BNPL products (often interest-free), decreasing overall by 41 percent in 2019. However, the report found that consumer loans, excluding BNPL, increased 94.8 percent during the same period—a result likely caused by an increase in originations of consumer loans secured by real estate. Finance lenders, including BNPL, originated nearly 12 million consumer loans in 2020 (a 530 percent increase over the prior year), with the top six BNPL lenders accounting for 91 percent of the total consumer loans originated in 2020. DFPI noted that a surge in BNPL unsecured consumer loans reported to the regulator shows that BNPL payment options are becoming increasingly popular. DFPI also discussed recent BNPL enforcement actions, which required companies to consider a consumer’s ability to repay a loan and subjected the companies to rate and fee caps.
The report also examined PACE financing data. According to findings, there was an 18 percent decline in the total number of PACE assessment contracts funded and originated in 2020, and a 30 percent decrease in gross income for PACE program administrators since 2019.