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Financial Services Law Insights and Observations


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  • CFPB and Arkansas AG settle with pension-advance brokers

    Federal Issues

    On August 15, the CFPB and the Arkansas attorney general announced a proposed settlement with three loan brokerage companies, along with their owner and operator (collectively, “defendants”) for allegedly misrepresenting the contracts offered to veterans and other consumers. According to the complaint, from 2011 through 2016, the defendants offered high-interest credit to consumers, deceptively marketed as purchases of future pension or disability payments. The contracts allegedly required veterans to instruct that their pension direct deposits or monthly allotments be routed to the bank account controlled by the defendants or pay the contracted amounts from other sources, including purchasing life-insurance policies, to ensure the contract amount would be paid. The defendants allegedly did not disclose to consumers the interest rates associated with the products, marketing the contracts as sale of payments and not credit offers. The defendants also allegedly did not disclose that the contracts were void under federal and state law, which prohibit the assignment of certain benefits.

    Under the proposed settlement, the defendants are: (i) prohibited from brokering or participating in agreements that sell future pension rights; (ii) required to pay a civil money penalty of $1 to the Bureau; and (iii) required to pay $75,000 to the Arkansas AG’s Consumer Education and Enforcement Fund. Additionally, the settlement imposes a judgment of $2.7 million in redress, which is suspended upon the owner paying $200,000 in redress and making the payments to the Bureau and the Arkansas AG.

    Federal Issues CFPB Settlement State Issues State Attorney General Installment Loans

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  • CFPB settles student-loan suit against defunct educational institution

    Federal Issues

    On August 12, the CFPB announced a proposed settlement with a defunct for-profit educational institution to resolve allegations that the defendant engaged in unfair and abusive acts and practices in violation of the Consumer Financial Protection Act through its private student loan origination practices. As previously covered by InfoBytes, the CFPB filed a lawsuit in 2014 alleging, among other things, that the defendant offered new students short-term zero-interest loans to cover the difference between the cost of attendance and federal loans obtained by students, but when the short-term loans came due at the end of the students’ first academic year, the defendant forced borrowers into “high-interest, high-fee” private student loans knowing that borrowers could not afford them. According to the Bureau, this practice resulted in a 64 percent default rate on the loans. The terms of the proposed settlement include a $60 million judgment against the defendant as well as an injunction prohibiting the defendant from offering or providing student loans in the future.

    Earlier in June, the Bureau announced a settlement with a company that managed student loans for the defendant, which includes approximately $168 million in student loan forgiveness. (See previous InfoBytes coverage here.) The company has also agreed to permanently cease enforcing, collecting, or receiving payments on any of its loans.

    Federal Issues Courts CFPB Enforcement Student Lending UDAAP CFPA

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  • FTC settles with email company for deceptively collecting consumer information

    Federal Issues

    On August 8, the FTC announced a settlement with an email management company, which requires the company to delete the personal information it obtained from consumers’ email receipts after allegedly misleading consumers about the company’s services. In the complaint, the FTC alleges that the company, which assisted consumers in unsubscribing from unwanted subscription emails, deceptively told consumers that it would “never touch [their] personal stuff,” when providing the company access to their emails, but in reality, the company would access inboxes to collect consumers’ e-receipts to sell the purchase information to other companies. Moreover, the complaint alleges that, even after consumers chose to decline to allow the company access to their email, the company persisted with deceptive messages, which resulted in “[o]ver 20,000 consumers chang[ing] their minds and decid[ing] to complete the sign-up process after viewing the messages.” The settlement requires the company to: (i) delete from its system, and its parent company’s system, the email receipts it collected from consumers, unless it obtains their affirmative consent to maintain the information; (ii) cease misrepresenting the way it collects, uses, stores, or shares the information it collects; and (iii) notify consumers who have signed up for the service, after viewing the deceptive messages, about how it collects and shares information.

    Federal Issues FTC Deceptive UDAP

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  • VA consolidates and clarifies IRRRL guidance

    Agency Rule-Making & Guidance

    On August 8, the Department of Veterans Affairs (VA) issued Circular 26-19-22, which consolidates and clarifies guidance related to Section 309 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, Public Law No. 115-174, and updates guidance regarding loan seasoning requirements based on the “Protecting Affordable Mortgages for Veterans Act of 2019,” Public Law No. 116-33. (Covered by InfoBytes here and here.) The Circular states that a lender (broker or agent included), a servicer, or issuer of an Interest Rate Reduction Refinance Loan (IRRRL) must, among other things:

    • Recoup Fees. Certify that certain fees and costs of the loan will be recouped on or before 36 months after the loan note date;
    • Net Tangible Benefit. Establish that when the previous loan had a fixed interest rate (i) the new fixed interest rate is at least 0.5 percent lower, or (ii) if the new loan has an adjustable rate, that the rate is at least 2 percent lower than the previous loan. In each instance, the lower rate cannot be produced solely from discount points except in certain circumstances;
    • Loan Seasoning. Follow a seasoning requirement for all VA-guaranteed loans. A loan cannot be refinanced until (i) the date on which the borrower has made at least six consecutive monthly payments on the loan being refinanced, and (ii) the date that is 210 days after the first payment due date of the loan being refinanced; and
    • Disclosure. Present a comparison of the refinance loan to the original loan within two business days from the initial loan application and again at closing that includes information about the overall cost of refinance. The Circular offers a sample comparison statement in Exhibit C.

    Agency Rule-Making & Guidance Federal Issues Ginnie Mae Refinance IRRRL EGRRCPA

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  • FHFA delays URLA implementation, removes language preference question

    Federal Issues

    On August 8, at the direction of the FHFA, Fannie Mae and Freddie Mac (GSEs) announced that the mandatory use of the redesigned Uniform Residential Loan Application (URLA) will no longer begin on February 1, 2020. FHFA has directed the GSEs to make specific modifications to the URLA form, including, most notably, the removal of the language preference question. The question, along with the home ownership education and housing counseling question, will now be a part of a separate voluntary consumer information form. The announcement does not provide information on the new implementation dates.

    Federal Issues FHFA GSE Fannie Mae Freddie Mac URLA

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  • Federal Reserve developing real-time payment system

    Federal Issues

    On August 5, the Federal Reserve Board (Board) announced that Federal Reserve Banks will develop a “round-the-clock real-time payment and settlement service” called the “FedNow℠ Service.” According to a notice and request for comment, “the service would support depository institutions’ provision of end-to-end faster payment services and would provide infrastructure to promote, ubiquitous, safe, and efficient faster payments in the United States.” The Board is requesting comments on how the service might be designed in order to support payment system stakeholders and the general functioning of the U.S. payment system. FedNow is anticipated to be available in 2023 or 2024. Comments on the notice will be due 90 days after publication in the Federal Register. The Board also released FAQs associated with faster payments.

    In a speech announcing the service, Governor Brainard noted that FedNow will be accessible to all banks and “will permit banks of every size in every community across the country to provide real-time payments to their customers.” Brainard noted that the Board is “uniquely placed to deliver this outcome” given its “long-standing service connections with more than 10,000 banks across the country.”

    As previously covered by InfoBytes, the Board issued a request for comments in October 2018 regarding potential actions the Board could take to facilitate real-time interbank settlement of faster payments. The Board reports that it received over 350 comments and over 90 percent supported the Board operating its own, round-the-clock payment service alongside services provided by the private sector.

    Federal Issues Federal Reserve Payments Federal Register

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  • Maximum LTV lowered for FHA cash-out refinances

    Federal Issues

    On August 1, HUD issued Mortgagee Letter 2019-11, which lowers the maximum loan-to-value (LTV) and combined maximum loan-to-value (CLTV) from 85 percent to 80 percent on cash-out refinances for FHA-insured mortgage loans. The letter notes that the total number of cash-out refinance mortgages of FHA-insured mortgage loans has increased 250.47 percent from FY 2013 to FY 2018, and that the FHA therefore has concluded that the reduction in LTV is prudent “in order to strengthen the equity position of cash-out refinances and reduce loss severities in the event of default, [and] stay ahead of any potential future shift in the housing market.” The new LTV is effective for any mortgage loans insured by FHA on or after September 1.

    Federal Issues HUD FHA Mortgages Refinance Cash-Out Refinance

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  • DOJ announces $3 million SCRA settlement with auto finance company

    Federal Issues

    On August 1, the Department of Justice (DOJ) announced a $3 million settlement with a captive auto finance company, resolving allegations that it violated the Servicemembers Civil Relief Act (SCRA) by repossessing 113 vehicles owned by SCRA-protected servicemembers without first obtaining court orders and failing to refund upfront capitalized cost reduction (CCR) amounts to servicemembers who lawfully terminated vehicle leases early under the SCRA. According to the DOJ’s complaint, when a servicemember terminated their lease early pursuant to the SCRA, the finance company retained the entire CCR amount even though the SCRA requires that it refund all lease amounts paid in advance for a period after the effective date of the termination. The settlement agreement covers all repossessions of servicemembers vehicles and leases terminated by servicemembers since January 2008, and requires the finance company to create an almost $3 million settlement fund to compensate affected servicemembers and pay the U.S. Treasury $62,000. Moreover, the agreement requires the finance company to review and update its SCRA policies and procedures to prevent future violations and to provide SCRA compliance training to specified employees.

    Federal Issues DOJ SCRA Servicemembers Department of Treasury

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  • VA encourages relief for Hurricane Barry-affected borrowers

    Federal Issues

    On July 30, the Department of Veterans Affairs (VA) issued Circular 26-19-21, encouraging mortgagees to provide relief for VA borrowers affected by Hurricane Barry on the Gulf Coast. Among other forms of assistance, the Circular encourages loan holders and servicers to (i) extend forbearances to borrowers in distress because of the severe storms and flooding; (ii) establish a 90-day moratorium from the disaster date on initiating new foreclosures on affected loans; (iii) waive late charges on affected loans; and (iv) suspend credit reporting. The Circular is effective until July 1, 2020. Mortgage servicers and veteran borrowers are also encouraged to review the VA’s Guidance on Natural Disasters.

    Find continuing InfoBytes coverage on disaster relief guidance here.

    Federal Issues Disaster Relief Department of Veterans Affairs Consumer Finance Mortgages

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  • Senators ask DOJ to clarify website accessibility under ADA

    Federal Issues

    On July 30, seven Republican Senators sent a letter to Attorney General William Barr requesting updates on the DOJ’s efforts to clarify website accessibility requirements for businesses under the Americans with Disabilities Act (ADA). This request follows a letter previously sent to the DOJ in September 2018, requesting the Department’s help in resolving uncertainties regarding website accessibility regulations and requesting guidance to address conflicting court opinions. According to the Senators, the DOJ withdrew two Notices of Proposed Rulemaking concerning website accessibility standards in 2017 under claims that it is “evaluating whether promulgating regulations about the accessibility of Web information and services is necessary and appropriate. Such an evaluation will be informed by additional review of data and further analysis. The Department will continue to assess whether specific technical standards are necessary and appropriate to assist covered entities with complying with the ADA.” The DOJ responded a month later, stating that “absent the adoption of specific technical requirements for websites through rulemaking, public accommodations have flexibility in how to comply with the ADA’s general requirements of nondiscrimination and effective communication. Accordingly, noncompliance with a specific voluntary technical standard for website accessibility does not necessarily indicate noncompliance with the ADA.”

    In their 2019 letter, the Senators stressed that, because the DOJ did not specify further concrete plans to address website accessibility guidance, businesses are subject to litigation risk and inconsistent outcomes. Moreover, the Senators urged the DOJ to provide further clarity, particularly because the issue of whether private websites must comply with the ADA “continues to be subject to conflicting judicial opinions.” Additionally, they pointed to the Web Content Accessibility Guidelines 2.0 standard, which governs website accessibility for federal government websites, and noted that if the government gets the benefit of clear guidance, then the public should as well.

    Federal Issues DOJ U.S. Senate Americans with Disabilities Act

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