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OCC proposes True Lender rule
On July 20, the OCC issued a proposed rule (see also Bulletin 2020-70) that addresses when a national bank or federal savings association (bank) is the “true lender” in the context of a partnership between a bank and a third party in order to clarify uncertainties about the legal framework that applies. Specifically, the proposed rule amends 12 CFR part 7 to state that “a bank makes a loan when, as of the date of origination, it (i) is named as lender in the loan agreement or (ii) funds the loan.” The OCC notes that the proposal intends to cover situations where the bank “has a predominant economic interest in the loan,” as the original funder, even if it is not “the named lender in the loan agreement as of the date of origination.”
In response, the Conference of State Bank Supervisors (CSBS) issued a statement opposing the proposal, stating that “the true lender doctrine is and should remain a matter of state law.”
As previously covered by InfoBytes, the OCC and the FDIC recently issued final rules clarifying that whether interest on a loan is permissible under federal law is determined at the time the loan is made and is not affected by the sale, assignment, or other transfer of the loan, effectively reversing the U.S. Court of Appeals for the Second Circuit’s 2015 Madden v. Midland Funding decision. At the time, both agencies chose not to address the “true lender” issue.
CFPB adjusts annual dollar amount thresholds under TILA regulations
On July 17, the CFPB released the final rule revising the dollar amounts for provisions implementing the Truth in Lending Act (TILA) and amendments to TILA, including the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s ability-to-repay and qualified mortgage (ATR/QM) provisions. The CFPB is required to make annual adjustments to dollar amounts in certain provisions in Regulation Z, and has based the adjustments on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2020. The following thresholds will be effective on January 1, 2021:
- For open-end consumer credit plans under TILA, the threshold for disclosing an interest charge will remain unchanged at $1.00;
- For open-end consumer credit plans under the CARD Act, the adjusted dollar amount for the safe harbor for a first violation penalty fee will remain unchanged at $29, and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will also remain unchanged at $40;
- For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages will be $22,052, and the adjusted points and fees dollar trigger for high-cost mortgages will be $1,103; and
- The maximum thresholds for total points and fees for qualified mortgages under the ATR/QM rule will be: (i) three percent of the total loan amount for loans greater than or equal to $110,260; (ii) $3,308 for loan amounts greater than or equal to $66,156 but less than $110,260; (iii) five percent of the total loan amount for loans greater than or equal to $22,052 but less than $66,156; (iv) $1,103 for loan amounts greater than or equal to $13,783 but less than $22,052; and (v) eight percent of the total loan amount for loan amounts less than $13,783.
FDIC seeks input on voluntary certification of innovative technologies
On July 20, the FDIC issued a Request for Information (RFI) seeking input on whether a public/private standard-setting partnership and voluntary certification program could be established to (i) promote the efficient and effective adoption of innovative technologies at supervised financial institutions; and (ii) support financial institutions’ efforts to implement innovative models, manage risk, and conduct due diligence of third-party fintech firms. The RFI is being issued as part of the agency’s FDiTech initiative (covered by InfoBytes here), which was established in 2019 to encourage innovation within the banking industry (particularly at community banks), support collaboration for piloting new products and services, eliminate regulatory uncertainty, and manage risks.
The FDIC stated that establishing a standards-setting body, developed by regulators and industry stakeholders, would help promote innovation across the banking sector and streamline the vetting process for fintech partners. The agency noted that a voluntary certification program could assist in standardizing due diligence practices and reduce costs for financial institutions that choose to participate. Additionally, the FDIC emphasized that it “is especially interested in information on models and technology services developed and provided by [fintechs].” Comments are due 60 days after publication in the Federal Register.
District court shuts down operation claiming debt relief for students
On July 20, the FTC announced that the U.S. District Court for the Central District of California issued a final judgment permanently banning defendants in a student loan debt relief operation from telemarketing or providing debt relief services. As previously covered by InfoBytes, in 2019 the FTC charged the defendants with violations of the FTC Act and the Telemarketing Sales Rule (TSR) for allegedly, among other things, (i) charging borrowers illegal advance fees; (ii) falsely claiming they would service and pay down borrowers’ student loans; and (iii) obtaining borrowers’ credentials in order to change consumers’ contact information and prevent communications from loan servicers.
The court’s order granted the FTC’s motion for summary judgment, finding that the defendants received revenues of at least $31.1 million derived unlawfully from payments received from borrowers due to the defendants’ violations of the FTC Act and TSR. Of these revenues, only about $3.1 million had been paid by the defendants to borrowers’ federal student loan servicers, the order stated, although the court noted that the defendants allegedly refunded about $408,089 to consumers. The court imposed a roughly $27.6 million judgment against the defendants as equitable monetary relief, and permanently banned the defendants from offering similar services in the future, including misrepresenting, or assisting others in misrepresenting, any facts materials to a consumer’s decision to purchase financial products or services.
Colorado amends public health order to require certain employees of critical businesses to wear masks, gloves
On July 21, the Colorado Department of Public Health and Environment issued Amended Public Health Order 20-31, which provides requirements for face coverings and gloves. All employees, contractors, and others providing services for critical businesses that interact in close proximity with other employees or with the public must wear a medical or non-medical cloth face covering that covers the nose and mouth, unless this would inhibit the individual’s health. Employers that operate critical businesses should provide employees with non-medical face coverings. Employees, contractors, and others providing services for critical businesses must also wear gloves, as appropriate by industry standards, when in physical contact with customers or goods if gloves are provided by the employer. The order took effect on July 21 and will continue through August 15, unless otherwise suspended or extended.
Texas Supreme Court orders CARES Act certifications in eviction proceedings
On July 21, the Texas Supreme Court issued an order requiring landlords initiating eviction proceeds to issue a sworn statement describing whether the premises at issue is subject to the CARES Act moratorium on evictions, and whether the landlord has provided the defendant with 30 days’ notice to vacate as required by the CARES Act. The order applies to eviction proceedings filed through August 24.
Massachusetts governor extends pause on evictions and foreclosures
On July 21, the Massachusetts governor extended a moratorium on evictions and foreclosures for an additional 60 days, until October 17, 2020. The moratorium was established through legislation enacted in April and previously covered here. The moratorium applies to most residential and small business commercial evictions, as well as residential foreclosures. The statement announcing the extension also notes the recent launch of a $20 million, statewide fund to assist low-income households and support landlords. An additional $18 million is available through the Residential Assistance for Families in Transition homeless prevention program for rent or mortgage payments.
FinCEN warns of virtual currency social media scam
On July 16, the Financial Crimes Enforcement Network (FinCEN) issued an alert warning financial institutions about a scam using social media accounts to solicit fraudulent payments denominated in convertible virtual currency (CVC). According to FinCEN, high-profile social media accounts were compromised and used to solicit payments to CVC accounts, with claims that any CVC sent would be “doubled and returned to the sender.” The alert reminds financial institutions to report suspicious transactions involving this type of activity as soon as possible, and that “[a]ny data or information that helps identify the activity as suspicious can be included as an indicator” on their Suspicious Activity Report (SAR) form. The alert notes several indicators to assist financial institutions in identifying activity related to the scam, including (i) communications soliciting payments with misspellings; (ii) social media posts soliciting donations from unverified accounts; and (iii) multiple accounts communicating the same message soliciting funds for an unknown purpose.
FCC provides safe harbors for blocking illegal robocalls
On July 16, the FCC issued an order adopting rules to further encourage phone companies to block illegal and unwanted robocalls and to continue the Commission’s implementation of the TRACED Act (covered by InfoBytes here). The rule establishes two safe harbors from liability for the unintended or inadvertent blocking of wanted calls: (i) voice service providers will not be held liable under the Communications Act and FCC rules on terminating voice service providers that block calls, provided “reasonable analytics,” such as caller ID authentication information, are used to identify and block illegal or unwanted calls; and (ii) voice service providers will not be held liable for blocking calls from “bad-actor upstream voice service providers that continue to allow unwanted calls to traverse their networks.” The FCC’s order also includes a Further Notice of Proposed Rulemaking seeking comments on, among other things, “whether to obligate originating and intermediate providers to better police their networks against illegal calls,” whether the “reasonable analytics” safe harbor should be expanded “to include network-based blocking without consumer opt-out,” and whether the Commission should adopt more extensive redress requirements, and require terminating providers to provide consumers information about blocked calls.
5th Circuit affirms arbitration in UDAAP action
On July 16, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s order compelling arbitration in a lawsuit brought by consumers refuting their liability on a commercial loan, arguing that a Mississippi-based bank “violated numerous state and federal consumer protection laws throughout the loan process.” According to the opinion, the consumers allege a bank representative instructed them to form an LLC and purchase a large plot of land with a commercial loan, as opposed to a consumer loan, in order to receive a “lower interest rate and protection from personal liability[.]” As a part of the transaction, the consumers signed an arbitration agreement that covered “‘any dispute or controversy’ arising from the transaction.” The consumers subsequently filed suit, arguing, among other things, that the bank committed “an unfair, deceptive, abusive act, or practice…by coaxing the [consumers] into forming an LLC and taking out a less favorable commercial loan” rather than a consumer loan, which they originally sought. The bank moved to compel arbitration, and the district court granted the motion and dismissed the action with prejudice.
On appeal, the 5th Circuit agreed with the district court, rejecting the consumers’ argument that there was not a valid agreement to arbitrate. The appellate court concluded that the agreement was neither procedurally nor substantively unconscionable, noting that the consumers voluntarily entered into the agreement and the provision entitling “the victor in arbitration to recover fees from the losing party” was not “one-sided or oppressive.” Moreover, the appellate court concluded that the consumers failed to provide any federal policy or statute that would support their additional argument that the bank’s alleged UDAAP violation would void an otherwise valid arbitration agreement. Thus, the panel affirmed the district court’s order.