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Financial Services Law Insights and Observations

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  • FTC temporarily halts payday lending enterprise

    Federal Issues

    On May 22, the FTC announced that the U.S. District Court for the District of Nevada granted a temporary restraining order against a group of 11 defendants operating a payday lending enterprise for allegedly deceptively overcharging consumers and withdrawing money from consumers’ accounts without permission. According to the complaint filed by the FTC, the defendants advertised loans with fixed payback terms, but in many cases, the payback terms would default to debiting the financial fee only. In some circumstances, consumers would receive an email with payback options, including “full payoff, loan extension, and loan buy down,” but the defendants would still require the consumer to notify them three days in advance if they wanted to pay off the entire loan amount, if not, only the “financial fee” would be debited. The FTC argues that the defendants violated the FTC Act, the Telemarketing Sales Rule, TILA/Regulation Z, and the Electronic Funds Transfer Act/Regulation E by, among other things, (i) marketing loan products as having a fixed number of payments when funds were only being applied to finance charges and payment withdrawals continued beyond the promised number of payments; (ii) failing to make the required loan disclosures; (iii) failing to obtain proper authorization for reoccurring bank account withdrawals; and (iv) unlawfully using remotely created checks. Beyond the temporary restraining order, the FTC is seeking a permanent injunction, contract rescission, restitution, and disgorgement.

    Federal Issues FTC Payday Lending Courts Enforcement FTC Act Telemarketing Sales Rule TILA EFTA

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  • Idaho Department of Finance extends work from home guidance for its licensees and registrants

    State Issues

    On May 22, the Idaho Department of Finance extended temporary work from home guidance previously issued to Idaho mortgage brokers and lenders, mortgage loan originators, regulated lenders, title lenders, payday lenders, and collection agency licensees and registrants. The original guidance, previously covered here, permits employees to work from home where the residence is not a licensed branch. The guidance is extended through September 1, 2020.

    State Issues Covid-19 Idaho Licensing Mortgage Broker Broker-Dealer Mortgage Lenders Loan Origination Mortgage Origination Title Loans Payday Lending Debt Collection

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  • Waters urges exclusion of predatory lenders from PPP loans

    Federal Issues

    On May 1, Chairwoman of the House Financial Services Committee, Maxine Waters (D-CA), sent a letter to the Department of Treasury (Treasury) and the Small Business Administration (SBA) urging them to prohibit payday and car-title lenders from receiving Paycheck Protection Program (PPP) loans, citing harm these types of lenders have caused to consumers. The Congresswoman stressed that “there is no reason why Congress, SBA, or Treasury should bail out these predatory lenders” and encouraged them to instead focus on “providing PPP loans to the millions of responsible small businesses who are pillars in communities across the country and warrant immediate support.”

    Federal Issues Congress House Financial Services Committee Department of Treasury SBA Small Business Lending CARES Act Payday Lending Title Loans Covid-19

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  • Michigan Department of Insurance and Financial Services defines certain operations as essential

    State Issues

    On March 30, Michigan Department of Insurance and Financial Services Director Anita Fox issued a bulletin clarifying that certain financial services are considered essential businesses and operations. The following financial businesses are deemed essential: (i) banks, credit unions, and consumer finance providers, such as mortgage companies, consumer installment lenders, payday lenders, etc.; (ii) bond issuers; and (iii) title companies, inspectors, appraisers, surveyors, registers of deeds, and notaries. The bulletin clarified the scope of an executive order signed by Governor Whitmer on March 23, which in part, called for residents to stay in their homes and limited in-person exceptions to essential activities (previously discussed here).

    State Issues Covid-19 Michigan Banking Consumer Finance Credit Union Mortgages Installment Loans Payday Lending

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  • Illinois Department of Financial and Professional Regulation issues guidance to Consumer Installment Loan Act, Payday Loan Reform Act, and Sales Finance Agency Act licensees on office closures

    State Issues

    On March 30, the Illinois Department of Financial and Professional Regulation (Department) issued guidance to licensees under the Consumer Installment Loan Act, Payday Loan Reform Act, and Sales Finance Agency Act regarding office closures due to Covid-19. A licensee may close its offices without notice and approval of the Department as otherwise required under applicable law if certain conditions are met. For example, the licensee must provide notice to the Department no later than 24 hours after the closure and one business day prior to reopening, and the licensee must provide reasonable methods for consumers to make payments while its offices are closed. Additionally, if any payments are due on any obligations to a licensee on any closed day, then the payment must be considered received on the closed day for all purposes, including the computation of interest or charges, if received at any time before the close of business on the 30th calendar day following the last closed day.

    State Issues Illinois Covid-19 Licensing Installment Loans Payday Lending

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  • Kentucky governor orders closing of all non-life-sustaining businesses

    State Issues

    On March 25, Kentucky Governor Andy Beshear issued an executive order mandating that only “life-sustaining businesses” may remain open and encouraged citizens to remain “healthy at home.” The list of life-sustaining businesses includes banks, credit unions, mortgage companies, payday lenders, check cashers, money transmitters, and securities institutions.

    State Issues Governors Credit Union Mortgages Payday Lending Mortgage Lenders Kentucky Covid-19 Executive Order

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  • Wisconsin Department of Financial Institutions issues guidance to payday lenders

    State Issues

    On March 18, the Wisconsin Department of Financial Institutions (DFI) announced the issuance of emergency guidance on character and fitness requirements for all payday and licensed lenders doing business in Wisconsin. The DFI cautions payday and licensed lenders that increasing interest rates, fees, or any costs of borrowing in response to the Covid-19 crisis may result in license suspension or revocation. The emergency guidance also encourages the reduction of rates and fees “as low as operational expenses and sound lending practices allow.”

    State Issues Licensing Payday Lending Covid-19 Wisconsin

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  • Idaho regulator issues “Work from Home” guidance

    State Issues

    On March 12, the Idaho Department of Finance issued guidance to its licensees and registrants—including mortgage brokers/lenders, mortgage loan originators, regulated lenders, title lenders, payday lenders and collection agencies—permitting employees to work from home even where the residence is not a licensed branch. The Department stated it will not take action against a licensee or registrant so long as the licensable activities meet specified data security and privacy requirements, and the licensee or registrant avoids advertising the unlicensed address or phone number, meeting consumers at the residence, or otherwise holding out or suggesting that the residence is a licensed location. The guidance is effective until June 30.

    State Issues Covid-19 Idaho Licensing Payday Lending MLO Debt Collection Mortgage Broker Mortgage Lenders Title Loans

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  • District court approves $18.5 million “rent-a-tribe” payday loan settlement

    Courts

    On February 25, the U.S. District Court for the Eastern District of Virginia granted preliminary approval of an $18.5 million class action settlement to resolve allegations including violations of the Racketeer Influenced and Corrupt Organizations Act, state usury and lending laws, and unjust enrichment against a financial technology company and a tribal corporation (defendants). According to the complaint, the company evaded state law usury limits by attempting to use the sovereignty of an Indian tribe (“rent-a-tribe”) in order to issue payday loans carrying annual percentage interest rates as high as 460 percent. While the defendants have denied any wrongdoing, they have agreed to, among other things, (i) cancel loans originated during the class period “on the basis that the debt is disputed”; (ii) no longer sell any outstanding loans and cease all collection activity; (iii) contact all consumer reporting agencies to request the permanent removal of any missed payment marks on loans originated during the class period; (iv) no longer sell class members’ personal identifying information to third parties; and (v) establish an $18.5 million fund to go towards costs, service awards, attorneys’ fees, and cash awards to class members.

    Courts Settlement Payday Lending Class Action State Issues RICO Usury

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  • CFPB issues Winter 2020 Supervisory Highlights

    Federal Issues

    On February 14, the CFPB released its winter 2020 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of student loan servicing, payday lending, debt collection, and mortgage servicing. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between April and August of 2019. Highlights of the examination findings include:

    • Debt collection. The Bureau cited violations of the FDCPA’s requirement that debt collectors must, after the initial written communication, disclose that their communications are from a debt collector. The report also included the failure of some debt collectors to provide a written validation notice to consumers within five days after the debt collector initially contacts the consumer regarding the collection of a debt.
    • Payday lending. The Bureau found violations of the CFPA, including among other things, lenders failing to apply consumer payments to their loan balances and treating the accounts as delinquent. The Bureau also found weaknesses in employee training that resulted in providing consumers with inaccurate annual percentage rates in violation of Regulation Z.
    • Mortgage servicing. The Bureau pointed out that servicers had violated Regulation X by failing to provide written acknowledgement of receipt of consumer loss mitigation applications, including whether the applications were complete or incomplete, within five days of receipt. Servicers also failed to provide in writing a list of loss mitigation options for which the consumer was eligible within 30 days of receiving a complete loss mitigation application.
    • Student loan servicing. The Bureau noted that after loans were transferred, some servicers billed incorrect monthly amounts to the consumers.

    The report notes that in response to most examination findings, the companies have taken or are taking remedial and corrective actions, including by identifying and compensating impacted consumers and updating their policies and procedures to prevent future violations. Lastly, the report also highlights the Bureau’s recently issued rules and guidance.

    Federal Issues CFPB Debt Collection FDCPA Payday Lending Student Loan Servicer Mortgage Servicing Supervision Enforcement RESPA TILA ECOA Examination

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