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2nd Circuit: Collection letter failed to properly identify creditor in violation of FDCPA
On April 3, the U.S. Court of Appeals for the Second Circuit reversed and vacated the dismissal of an FDCPA action against a debt collector (defendant), holding that a collection letter failed to identify the correct creditor to whom a debt was owed. The consumer (plaintiff) alleged that the defendant sent him a collection letter concerning a private-label credit card account offered by a merchant. The defaulted debt originally was owned by one national bank and later acquired by a different national bank. The collection letter, however, identified the merchant (the servicer of the account) and the original credit grantor, but failed to disclose the current creditor. The plaintiff filed a class-action complaint alleging that the defendant violated Section 1692g of the FDCPA by not properly identifying the name of the creditor to whom the debt was owed, and violated Section 1692e by making a “false or misleading communication in connection with a debt.” The district court granted the defendant’s motion for judgment on the pleadings and dismissed the complaint, concluding that the merchant, as servicer, was the creditor to whom the debt is owed and that the failure to name the current creditor “would not have materially affected a consumer’s decision-making process.”
On appeal, the 2nd Circuit concluded that, because the cardmember agreements between the merchant, the current creditor, and the plaintiff clearly acknowledge that the national bank—and not the merchant—is the creditor, the defendant violated Section 1692g by not naming the correct creditor in the letter. With respect to the plaintiff’s Section 1692e claim, the appellate court determined that “it is far from clear that [the defendant’s] failure to identify [the current creditor] constituted a materially misleading statement under Section 1692e.” In fact, the appellate court stated that “it might be argued that if [the defendant] had identified [the current creditor] and not [the merchant], such an action ‘likely would have caused confusion.’” (Emphasis in the original.) However, the 2nd Circuit determined that the claim should not have been dismissed because the district court erroneously concluded that the merchant was the creditor to whom the debt was owned, and that the district court failed to address whether the defendant’s failure to identify the current creditor was a materially misleading statement under Section 1692e. The appellate court vacated the district court’s judgment and remanded the case for further proceedings.
2nd Circuit: New York usury law does not apply to interest rate applied after default
On March 30, the U.S. Court of Appeals for the Second Circuit affirmed multiple orders issued by a district court in favor of an assignee mortgage holder (plaintiff), concluding that a borrower (defendant) was liable for interest at a default rate of 24 percent per year. After the defendant fell behind on his mortgage payments, the debt ultimately was assigned to the plaintiff, who initiated a foreclosure action. The plaintiff alleged a default date of February 1, 2008, and contended that the defendant was liable for interest at the 24 percent per year default rate. The district court granted the plaintiff’s motion for summary judgment, holding that the motion was supported by record evidence and that defendant’s affirmative defenses were meritless. The defendant’s motion for reconsideration was denied. A court-appointed Referee issued a report calculating the amount due on the note and mortgage, which the defendant appealed on several grounds, arguing, among other things, that (i) the plaintiff is a “debt collection agency” under New York City Administrative Code, and is precluded from taking action without being licensed; (ii) the 24 percent default interest rate applied by the Referee violates New York’s civil usury stature (which caps interest rates at 16 percent); and (iii) “the Referee erred by applying the default interest rate from the date of default rather than from the date of acceleration.”
On appeal, the 2nd Circuit concluded that, regardless of whether the plaintiff allegedly failed to obtain a debt collection agency license, the plaintiff was not necessarily barred from foreclosing on the mortgage and collecting the debt at issue. The appellate court also determined that New York’s civil usury statute “‘do[es] not apply to defaulted obligations . . . where the terms of the mortgage and note impose a rate of interest in excess of the statutory maximum only after default or maturity.” The appellate court further held that the mortgage note and agreement clearly stated that a lender is “entitled to interest at the [d]efault [r]ate . . . from the time of said default. . . .”
OCC to move ahead with CRA modernization proposal; Senate Democrats request new proposal
On April 9, OCC Comptroller Joseph M. Otting issued a statement thanking stakeholders for commenting on the joint notice of proposed rulemaking (NPR) to modernize the Community Reinvestment Act (CRA) issued by the OCC and FDIC last December. (See Buckley Special Alert discussing the NPR.) Otting emphasized that the OCC anticipates releasing a final rule during the first half of the year, explaining that the Covid-19 pandemic has highlighted communities’ need for even greater access to lending, capital, and services. “It is our intention to craft a final rule that will encourage banks to lend and invest more in the communities they serve, including low- and moderate-income neighborhoods,” Otting stated. “Further delay would only prevent these valuable resources from reaching those who need them most in this time of national emergency.”
However, 42 Senate Democrats, led by Senator Sherrod Brown (D-OH), sent a letter the same day asking the agencies to rescind the NPR, which, according to the lawmakers, currently “threatens to undermine more than 40 years of access to sustainable mortgage credit, small business loans, community development, and partnerships between financial institutions and the communities they serve.” According to the Senators, the NPR’s proposal to give banks a presumptive CRA grade based mainly on the ratio of the dollar value of all CRA activity to deposits is “inconsistent with the clear Congressional intent of the CRA,” in that it would force “dollar values onto activities that are not easily measured in monthly balance sheet totals,” and would also, among other things, encourage “banks to meet their CRA obligations with activities that produce the maximum dollar figure with the least effort.” Additionally, the Senators stressed that the NPR fails to address the lack of investment in rural areas, Indian Country, and currently underserved CRA markets, despite Otting noting in his statement that the OCC seeks “to increase support to small businesses, small and family-owned farms, Indian country, and distressed areas.” The Senators urged the agencies “to develop a new proposal that reflects evidence, community input, and Congressional intent.”
As previously covered by InfoBytes, on April 8, NYDFS Superintendent Linda Lacewell also sent a letter to the OCC expressing “strong opposition” to the NPR. A coalition of state attorneys general submitted a comment letter urging the agencies to withdraw the NPR as well.
CFPB updates Covid-19 student loan debt relief guidance for borrowers
On April 9, the CFPB released updated guidance for student loan borrowers during the Covid-19 pandemic. As previously covered by InfoBytes, the Bureau first released student loan borrower information on March 27, which covered debt relief provided by the CARES Act, including the automatic freeze on student loan payments until September 30 for those with federally held loans. Servicers will send required notices detailing the payment freeze to borrowers by the middle of April. The guidance notes that some federal student loans—including some Federal Family Education Loans—may be held by commercial lenders. These loans and other privately held loans do not qualify for automatic suspension of payments, and the Bureau encourages borrowers to contact their servicers for debt relief options such as deferment or forbearance if borrowers have difficulty making payments at this time. Borrowers with Perkins loans may also request loan forbearance from the borrowers’ institution for up to three months without submitting documentation.
CSBS requests clear guidance on PPP from SBA, Treasury
On April 9, the Conference of State Bank Supervisors (CSBS) sent a letter to Treasury Secretary Steven T. Mnuchin and Small Business Administration (SBA) Administrator Jovita Carranza regarding Paycheck Protection Program (PPP) guidance. The letter requested the SBA and Treasury to (i) “[i]nstitute clear, coordinated, and timely guidance and communication on PPP”; (ii) “[e]nsure community banks and their small business customers have equal access to PPP loans”; and (iii) “[e]stablish transparent, public disclosure on PPP loans” in order to make the PPP successful. Among other points, CSBS specifically asserted that different SBA offices are providing conflicting information regarding PPP loan funding, and lenders require guidance on required documentation, initial disbursements, and terms and structure of unforgiven amounts on the PPP loans. Additionally, community banks are experiencing difficulties with the SBA’s loan application submission portal, including access and requests for additional information. Finally, the letter urges public disclosure of PPP loan statistics.
Nevada temporarily exempts approved PPP lenders from licensing requirements
On April 9, the Nevada Financial Institutions Division (FID) issued a letter temporarily exempting from licensure under the Nevada Installment Loan and Finance Act currently approved Small Business Administration (SBA) 7(a) lenders under the Paycheck Protection Program (PPP). In order to take advantage of this relief, lenders that participate in the PPP must submit the exemption request form, which is found in the letter, for FID’s review and approval.
Please see Buckley’s dedicated SBA page, which includes additional SBA resources.
Fed, Treasury announce $2.3 trillion loan facilities
On April 9, the Federal Reserve Board (Fed) and the Department of Treasury (Treasury) announced actions to enhance liquidity in the financial system, including the expansion of recently initiated facilities and the launch of several new lending facilities. (See Fed press release here). As previously covered by InfoBytes, on March 23, Treasury announced the creation of three facilities to provide liquidity to the financial system: (i) the Term Asset-Backed Securities Loan Facility (TALF); (ii) the Primary Market Corporate Credit Facility (PMCCF); and (iii) the Secondary Market Corporate Credit Facility (SMCCF). To increase the flow of credit to consumers and businesses, the TALF will expand purchases to include “highly rated newly issued collateralized loan obligations and legacy commercial mortgage-backed securities as eligible collateral.” Treasury Secretary Steven T. Mnuchin approved a $10 billion equity investment in TALF, and—pursuant to the CARES Act—a $75 billion equity investment in PMCCF and SMCCF, which together are expected to provide up to $850 billion in credit. (See the TALF term sheet here, the PMCCF term sheet here, and the SMCCF term sheet here.)
Three new facilities approved by Secretary Mnuchin to support the flow of credit include the Paycheck Protection Program Lending Facility (PPPLF), the Main Street Business Lending Program, and a Municipal Liquidity Facility (MLF) to support the flow of credit in the economy. Pursuant to the CARES Act, the SBA’s Paycheck Protection Program (PPP) provides funding for small business loans so that they are able to pay their employees. The PPP will benefit from the PPPLF, which will provide liquidity to banks originating the PPP loans through term financing, and will then hold the PPP loans as collateral at face value. To advance the use of the PPPLF, the Fed, OCC, and FDIC issued an interim final rule, the “Regulatory Capital Rule: Paycheck Protection Program Lending Facility and Paycheck Protection Program Loans,” which is effective immediately. The interim final rule ensures that lending banks are able to “neutralize the regulatory capital effects of participating in the facility.” In addition, the CARES Act provides that SBA PPP loans “will receive a zero percent risk weight under the agencies’ capital rule.” Comments on the rule must be received within 30 days after publication in the Federal Register. (See the PPPLF term sheet here.)
Treasury, through CARES Act funds, will provide $75 billion in equity to the Main Street facility, which will support the Main Street Lending Program with funding for up to $600 billion in loans to small and mid-sized businesses. The program extends four-year loans with deferred principal and interest payments for one year. Originating banks retain 5 percent of the Main Street loans, and sell 95 percent of the loans to the Main Street facility. Borrowers seeking Main Street loans “must commit to make reasonable efforts to maintain payroll and retain workers.” (See the Main Street New Loan Facility here, and the Main Street Expanded Loan Facility here.)
Finally, the Fed will establish an MLF to support liquidity to state and local governments. The MLF will provide up to $500 billion for which Treasury will provide credit protection of $35 billion to the Fed with CARES Act funding. (See the MLF term sheet here).
Secretary Mnuchin stated that “[t]he combination of these facilities will provide up to $2.3 trillion in new financing to support American workers by helping American businesses preserve jobs, sustain operations, and continue to serve their customers.” Likewise, the Fed asserted that it “will continue to seek input from lenders, borrowers, and other stakeholders to make sure the program supports the economy as effectively and efficiently as possible while also safeguarding taxpayer funds.”
Alabama Bureau of Loans issues guidance on annual report submission
The supervisor for the Alabama State Banking Department Bureau of Loans issued a statement to licensees extending the annual report, mortgage call report, and financial statement deadlines to July 15.
Oklahoma governor issues stay at home order
On April 8, the Oklahoma governor issued an executive order closing all businesses that are not within a critical infrastructure or considered “essential” as defined by the Oklahoma Department of Commerce. The Oklahoma Essential Industries List includes financial services institutions and their workers. The order is effective until May 8.
Iowa Division of Credit Unions publishes comprehensive resource for Covid-19 updates
The Iowa Division of Credit Unions published a comprehensive resource containing information on Covid-19 regulatory updates. The document covers a range of regulatory changes applicable to credit unions, including: (i) the SBA-Paycheck Protection Program; (ii) Annual Meeting requirements; (iii) foreclosure moratoriums; (iv) remote notarizations; (v) member assistance; (vi) fraud awareness; (vii) moneys and credits tax filing deadline extensions (viii) loan deferments; and (ix) limitations of services/branch closures.