The New York Department of Financial Services has sent a letter directed to businesses that the DFS “understands…may be involved in online lending in the State of New York” and that asks recipients to complete a “New York Marketplace Lending Survey” that they can access online.

The letter states that the DFS is conducting the survey to gather information for a public report that it is required to issue by July 1, 2018 and which must include information about online lenders operating in New York and their business practices, including lending practices, interest rates and costs charged, and consumer complaints and investigations about the industry.  The report will also include an analysis of the primary differences between online lending products and those of traditional lenders, the risks and benefits of the products offered, other forms of credit that would be available to such borrowers in the absence of online lending opportunities, the types and availability of credit products for individuals and businesses, and access to capital by New York consumers.

Last month, we reported that identical bills had been introduced in the New York Assembly and Senate that would direct the DFS to issue the online lending report.  Those bills are intended to amend legislation signed into law by New York Governor Cuomo in December 2017 that created a seven-person task force to study online lending and issue a report by April 15, 2018.  The bills would eliminate the task force and provide that the report is to be prepared by the DFS by July 1, 2018 “in consultation with stakeholders, including online lenders, consumers and small businesses.”

In the letter, the DFS states that it is directed to issue the report by legislation passed by the New York legislature “which is subject to a chapter amendment.”  Our research indicates that neither of the identical bills have yet been signed by Governor Cuomo and that a “chapter amendment signature” is legislation signed by the Governor with the understanding that additional, minor, or technical amendments will be made at a later date.  Presumably the DFS has sent the letters in anticipation of the amendments contemplated by the bills becoming law.

In December 2015, the California Department of Business Oversight announced that it was launching an inquiry into the marketplace lending industry and, in April 2016, it issued a summary report of aggregate data provided by the companies that responded to the DBO’s online survey that was part of the inquiry.


Washington has become the latest state to impose a licensing requirement on student loan servicers. Yesterday, Governor Jay Inslee signed  SB 6029, which establishes a “student loan bill of rights,” similar to the bills that have been enacted in California, Connecticut, the District of Columbia, and Illinois.

The law has an effective date of 6/7/2018, and its requirements include the following:

  • Creation of Advocate Role: The law creates the position of “Advocate” within the Washington Student Achievement Council to assist student education loan borrowers with student loans. This role is analogous to that of “ombudsman” under proposed and enacted servicing bills in other states.  One of the Advocate’s roles is to receive and review borrower complaints, and refer servicing-related complaints to either the state’s Department of Financial Institutions (“DFI”) or the Attorney General’s Office, depending on which office has jurisdiction. The Advocate is also tasked with:
    • Compiling information on borrower complaints;
    • Providing information to stakeholders;
    • Analyzing laws, rules, and policies;
    • Assessing annually the number of residents with federal student education loans who have applied for, received, or are waiting for loan forgiveness;
    • Providing information on the Advocate’s availability to borrowers, institutions of higher education, and others;
    • Assisting borrowers in applying for forgiveness or discharge of student education loans, including communicating with student education loan servicers to resolve complaints, or any other necessary actions; and
    • Establishing a borrower education course by 10/1/20.
  • Licensing of Servicers: SB 6029 requires servicers to obtain a license from the DFI. There are various exemptions from licensing for certain types of entities and programs (trade, technical, vocational, or apprentice programs; postsecondary schools that service their own student loans; persons servicing five or fewer student loans; and federal, state, and local government entities servicing loans that they originated), although such servicers would still need to comply with the statute’s substantive requirements even if they are not licensed.
  • Servicer Responsibilities: All servicers, except those entirely exempt from the statute, are subject to various obligations. Among other things, servicers must:
    • Provide, free of charge, information about repayment options and contact information for the Advocate ;
    • Provide borrowers with information about fees assessed and amounts received and credited;
    • Maintain written and electronic loan records;
    • Respond to borrower requests for certain information within 15 days;
    • Notify a borrower when acquiring or transferring servicing rights; and
    • Provide borrowers with disclosures relating to the possible effects of refinancing student loans.
  • Modification Servicer Responsibilities: The bill imposes a number of requirements on third-parties providing student education loan modification services, including mandates that such persons: not charge or receive money until their services have been performed; not charge fees that are in excess of what is customary; and immediately inform a borrower in writing if a modification, refinancing, consolidation, or other such change is not possible.
  • Requirements for Educational Institutions: Institutions of higher education are required to send borrower notices regarding financial aid.
  • Fees: The bill also calls for the establishment, by rule, of fees sufficient to cover the costs of administering the program created by the bill.
  • Bank Exemption: The statute provides for a complete exemption for “any person doing business under, and as permitted by, any law of this state or of the United States relating to banks, savings banks, trust companies, savings and loan or building and loan associations, or credit unions.” Notably, this exemption does not expressly cover state banks chartered in other states.

As we recently noted, bills like  SB 6029 are being introduced in legislatures across the country at an increasing rate, and we are continuing to track the progress of these proposals as they move through various statehouses.

Hopefully the torrent of such proposals will soon be reduced to a trickle, now that the U.S. Department of Education has formally weighed in on this trend, issuing an interpretation emphasizing that the Higher Education Act, federal regulations, and applicable federal contracts preempt laws like SB 6209 that purport to regulate federal student loan servicers.

The 23rd Annual Consumer Financial Services Institute, sponsored by the Practising Law Institute, will take place on March 26-27, 2018, in New York City (and by live webcast and groupcast in Atlanta, Cleveland, and New Brunswick, New Jersey); and on May 7-8, 2018, in Chicago.  For the first time in many years, on June 25-26, 2018, the Institute will also be presented in San Francisco (and by live webcast).

This year’s Institute will explore in detail a number of important developments in consumer financial services regulation and litigation. I am again co-chairing the event, as I have for the past 22 years.

With the resignation of former CFPB Director Cordray and President Trump’s appointment of Mick Mulvaney as CFPB Acting Director, the agenda and activity of the CFPB is already undergoing significant change.  Further significant change can be expected under the new permanent Director who is eventually appointed and confirmed.  At the same time, state attorneys general and regulators are threatening to fill any void created by a less aggressive CFPB.

As was the case last year, the lead-off morning session on the first day will feature a panel discussion devoted to CFPB developments. During that almost two-hour program, I will moderate a discussion among experienced industry lawyers (one of whom will be my partner Chris Willis at the New York and Chicago programs) and consumer lawyers who closely follow the CFPB’s regulatory, supervisory, and enforcement activities.  If your practice involves the CFPB, you will not want to miss this panel discussion.

The first day will also include a one-hour panel titled “Federal Regulators Speak: Priorities & Coordination” that will feature representatives of the FTC and DOJ who will be joined in New York and Chicago by former Acting Comptroller of the Currency, Keith Noreika.  In San Francisco, the FTC and DOJ representatives will be joined by a FDIC representative.

New to the Institute this year will be a panel on the second day that will discuss the rapidly changing landscape for marketplace lending and fintech.  My partner Scott Pearson will be part of the San Francisco panel.

The Institute will also focus on a variety of other cutting-edge issues and developments, including:

  • Privacy and data security issues
  • FCRA/debt collection issues
  • Class action and litigation developments
  • State regulatory and enforcement developments
  • Plaintiff lawyers’ perspective of regulatory and litigation issues under Trump Administration

We hope you can join us for this informative and valuable program.  PLI has made a special 25 percent discounted registration fee available to those who register using the link that follows.  To register and view a complete description of PLI’s 23rd Annual Consumer Financial Services Institute, click here.

For more information, contact Danielle Cohen at 212.824.5857 or



The New York City Department of Consumer Affairs (DCA) has proposed new rules for used car dealers that would require dealers to provide the following disclosures to buyers:

  • A financing disclosure that includes the “sale terms,” “financing terms,” and pricing information for add-on products and services.  The financing terms include three APRs: “the Annual Percentage Rate (APR)” (presumably, the contract APR),  the “lowest APR offered to buyer by any finance company for loan with same term and down payment,” and the “APR offered to buyer by selected finance company”
  • A disclosure of the buyer’s right to cancel

The proposal would also require dealers to conspicuously post a “Used Car Consumer Bill of Rights” in any office or area of the dealer’s location where consumers negotiate and execute sales contracts and maintain an “automobile contract cancellation option report” that must be made available to the DCA upon request.

The American Financial Services Association sent a letter to the DCA commenting on the proposal in which AFSA stated that it believes the proposed disclosures “would confuse consumers and provide little additional consumer benefit.”  AFSA specifically took aim at the proposal’s requirement for three APRs to be disclosed.  AFSA observed that “in many cases, these rates will be different, forcing a consumer to interpret and understand as many as three different rates for the same transaction and may leave a consumer with the impression that the contract APR is lower than it actually is.”


The Washington state Senate and House of Representatives have passed a bill (House Bill 1056) that would expand the coverage of the Washington Service Members’ Civil Relief Act (WSCRA) and provide additional protections to active duty service members.  The bill is now awaiting signature by the state’s Governor, who is expected to sign it.  The bill is effective 90 days after the current legislative session is adjourned, which is expected to occur by March 8.

The WSCRA is the state’s version of the federal Servicemembers Civil Relief Act (SCRA).  Like the SCRA, the WSCRA provides various protections for active duty military service members, including reduced interest rates on preexisting debts, foreclosure and eviction protections, and protections from default judgments.  On March 28, 2018, from 12 p.m. to 1 p.m ET, Ballard Spahr attorneys will hold a webinar, “Update on Federal and State Military Finance Developments.”  Click here to register.

In 2014, the WSCRA was amended to create a private right of action and to authorize the Washington state Attorney General to enforce the WSCRA.  House Bill 1056 would further amend the WSCRA by expanding its definition of “service member” to mean “an active member of the United States armed forces, a member of a military reserve component, or a member of the national guard who is either stationed in or a resident of Washington state.”  The current definition only covers Washington state residents who are members of the national guard or a military reserve component.

The bill would also add a new section to the WSCRA that allows a service member to terminate or suspend certain service contracts at any time after he or she receives orders for a permanent change of station or a military deployment for 30 days or more.

The service contracts covered by the new section are: contracts for telecommunications services from a telecommunications company; health studio services from a health studio; subscription television services from a television service provider; and internet services from an internet service provider.  To terminate or suspend a contract, a service member must provide written proof of his or her official orders.

A termination or suspension is effective upon the service provider’s receipt of the service member’s written notice of termination or suspension (which can include email notice).  The service member remains obligated to pay for services rendered before the effective date of the suspension or termination, cannot be charged a penalty, lose a deposit, or incur any additional cost due to the suspension or termination, and can reinstate the services by giving written notice to the provider within 90 days after the service member’s military service terminates.

The bill specifies that the renewed services must be on the same terms and conditions that originally applied if the service member served for no more than 12 months.  For longer service, the terms and conditions for the renewed services must be the same as those offered to any new consumer at the lowest discounted or promotional rate within the previous 12 months.

In the absence of federal action, state legislators continue to propose bills that would increase data privacy and security protections for consumers.  Any entity that does business in these states or maintains confidential information of their residents should monitor the legislation to determine whether and how the proposed changes may affect operations.

The bills are a direct reaction to Equifax’s data breach disclosure last summer.  Oregon, New York, Alabama, and Rhode Island have now joined the list of states considering new data breach legislation.  Such legislation has already been proposed in Arizona, Colorado, North Carolina, and South Dakota.

See our legal alert for an analysis of how the new bills could affect covered entities.

The New York Education Department (NYED) has issued a ruling which states that the Bureau of Proprietary School Supervision (BPSS) will not permit an enrollment agreement, including an arbitration clause, to infringe on the Commissioner of Education’s or the NYED’s jurisdiction “to investigate schools and issue findings (whether or not a complaint is filed), to commence disciplinary action, or otherwise to issue any remedy, including with respect to the tuition reimbursement account, provided by the Education Law and the Commissioner’s regulations.”  BPSS regulates private career training schools.

The ruling further states that mandatory, pre-dispute arbitration will not be approved, regardless of whether a school receives financial aid under Title IV of the Higher Education Act because BPSS has determined that the use of arbitration clauses “would unreasonably undermine a student’s private right of action under New York’s Education Law §5003(8), which permits a ‘student injured by a violation of [Article 101 of the Education Law to] bring an action against the owner or operator of a licensed private career school for actual damages or one hundred dollars, whichever is greater.’”  The ruling includes conditions under which “permissive, post-dispute arbitration may be approved.”

In addition to covering enrollment agreements, the ruling would appear to apply to school financing arrangements offered by a career training school subject to BPSS’s jurisdiction.  Moreover, given the ruling, it also seems likely that BPSS would try to preclude a school from asserting rights under a mandatory, pre-dispute arbitration provision in a private loan note or credit agreement that finances a student’s education at the school.

In our view, NY’s effort is an exercise in futility since it is unlikely to survive a preemption challenge under the Federal Arbitration Act (FAA), which makes arbitration agreements “valid, irrevocable, and enforceable.”  See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1747, (2011) (“[w]hen state law prohibits outright the arbitration of a particular type of claim, the … conflicting rule is displaced by the FAA”).



The District of Columbia Department of Insurance, Securities, and Banking (DISB) has released for comment a revised “Student Loan Borrower’s Bill of Rights.”  The District of Columbia Student Loan Ombudsman Establishment and Servicing Regulation Act of 2016 (Servicing Act), which became effective February 18, 2017, directed the DISB to draft the Bill of Rights.  (In September 2017, pursuant to the Servicing Act, the DISB began licensing student loan servicers operating in D.C.)

As originally released in October 2017, the Bill of Rights contained five articles.  We commented that instead of tracking the student loan servicing principles articulated by other regulators, the Bill of Rights seemed to borrow copiously from principles for the origination, servicing, and collection of small business loans adopted by the Responsible Business Lending Coalition, a network of for-profit and non-profit lenders, brokers and small business advocates.  In the revised Bill of Rights, which contains 17 articles, the DISB now appears to be proposing student loan servicing principles that more closely resemble those articulated by other regulators.

The revised Bill of Rights contains numerous requirements that were not in the original version.  For example, the revised version contains requirements concerning payment allocation and partial payments (Article IV), monthly billing statements (Articles V and VI), annual tax statements (Article VII), schedule of fees (Article IX), reporting to credit bureaus (Article XI), access to default diversion services (Article XII), and refinancing disclosures (Article XIII).  However, the DISB does not identify the source of those rights, which are not separately set forth in the Servicing Act.

The National Council of Higher Education Resources (NCHER), a national trade association representing higher education finance organizations, has sent a letter to the DISB commenting on the revised Bill of Rights.  As a general matter, NCHER expresses its view that the principles should not create enforceable obligations and highlights the enormous compliance burden that would be created for servicers if the DISB were to attempt to require federal and private student loan servicers to follow separate servicing routines for D.C. residents.  We agree, and find it particularly troubling that the DISB appears to be seeking to create obligations that may not only be inconsistent with the terms of the underlying loans but also preempted by federal law.  

With respect to specific provisions of the revised Bill of Rights, NCHER’s comments include the following:

  • Article IV provides that a borrower “has the right to have his or her payments applied to outstanding loan balance(s) timely, appropriately, and fairly” and that the servicer’s application process “shall result in partial payments being applied in the best interest” of the borrower.  NCHER questions what it means to apply payments “appropriately,” “fairly,” and “in the best interest” of the borrower and states that servicers currently post their payment allocation procedures but “should not be held to a vague standard that could be interpreted to create fiduciary responsibilities.”
  • Articles V and VI provide that a borrower has a right to “a monthly billing statement” and quarterly periodic statements containing certain information.  NCHER questions whether these articles establish separate servicing requirements for D.C. residents and comments that if so, they “would be overly burdensome to require that monthly payments be sent to borrowers in an in-school deferment.”
  • Article IX provides that a borrower has a right to have the servicer’s current schedule of fees that could be charged to the borrower.  NCHER comments that this article “seems to be based on an inaccurate understanding of roles of the various players in the student loan industry.”  It notes that as a general matter, “loan fees such as late fees and NSF fees are charged by lenders, not servicers, and are disclosed as part of the lender’s Truth-in-Lending Act requirements.”  NCHER also comments that if the article purports to cover expedited payment or convenience fees, “it should be understood that these optional payment services are selected by the borrower.”
  • Article XII provides that a borrower has the right to access “default diversion services” from the servicer that notifies the borrower when he or she is at risk of default and requires the servicer to assist the borrower with avoiding a default.  NCHER raises numerous questions about this article, including what timeframe the DISB contemplates using when measuring whether a servicer has appropriately notified a borrower that he or she is at risk of default and what “default diversion services” are contemplated by the DISB.
  • Article XIII provides that to the extent a servicer or an agent of a servicer provides any financing to a borrower, including a loan modification or refinancing, the borrower has a right  to receive financing that complies with certain principles.  Such principles include that the financing “is in the best interest” of the borrower.  NCHER comments that this article also “misconstrues the role of servicers since they do not make loans or extent credit” and that the reference to financing that “is in the best interest” of the borrower “sets up a fiduciary or suitability standard where compliance may be impossible.”


Earlier this week New York Attorney General Eric Schneiderman sent a letter to select state legislators adding his backing to the creation of a licensing regime in New York for student loan servicing, similar to what has been emerging in state legislatures across the country over the past two years.

The letter provides express support for Governor Cuomo’s 2019 Executive Budget Proposal, which calls for, among other things, establishment of a Student Loan Ombudsman at the Department of Financial Services. As described in an outline summarizing the proposal:

The Governor will advance a comprehensive plan to further reduce student debt that includes creating a Student Loan Ombudsman at the Department of Financial Services; requiring all colleges annually provide students with estimated amounts incurred for student loans; enacting sweeping protections for students including ensuring that no student loan servicers or debt consultants can mislead a borrower or engage in any predatory act or practice, misapply payments, provide credit reporting agencies with inaccurate information, or any other practices that may harm the borrower; and prohibiting the suspension of professional licenses of individuals behind or in default on their student loans.

Draft legislation in line with this proposal appears in Senate Bill S7508 and Assembly Bill A9508. Last year, Assembly Bill A8862 was introduced (establishing “the student loan borrower bill of rights to protect borrowers and ensure that student loan servicers act more as loan counselors than debt collectors”) and is currently in committee in the New York State Senate.

As we’ve previously noted, California, Connecticut, the District of Columbia, and Illinois have already enacted similar laws, and we have been closely tracking pending legislation in other states, including Ohio, Missouri, New Jersey, Virginia, and Washington. This is a trend that shows no signs of abating, and adoption in New York could serve as an additional catalyst as more states take up the issue.

By a vote of 245-171, the House passed H.R. 3299, the “Madden fix” bill (whose official title is the “Protecting Consumers’ Access to Credit Act of 2017.”)  In Madden, the Second Circuit ruled that a nonbank that purchases loans from a national bank could not charge the same rate of interest on the loan that Section 85 of the National Bank Act allows the national bank to charge.

The bill would add the following language to Section 85 of the National Bank Act: “A loan that is valid when made as to its maximum rate of interest in accordance with this section shall remain valid with respect to such rate regardless of whether the loan is subsequently sold, assigned, or otherwise transferred to a third party, and may be enforced by such third party notwithstanding any State law to the contrary.”

The bill would add the same language (with the word “section” changed to “subsection” when appropriate) to the provisions in the Home Owners’ Loan Act, the Federal Credit Union Act, and the Federal Deposit Insurance Act that provide rate exportation authority to, respectively, federal and state savings associations, federal credit unions, and state-chartered banks.  (A Senate bill with identical language was introduced in July 2017 by Democratic Senator Mark Warner.)

The House passed the bill despite strong Democratic opposition, with only 16 Democrats voting for the bill and 170 voting against.  As a result, the bill is expected to face an uphill battle in the Senate even though it can be passed with only 60 votes.

While adoption of a “Madden fix” would eliminate the uncertainties created by the Second Circuit’s Madden decision, it would not address a second source of uncertainty for some loans that are made by banks with substantial marketing and servicing assistance from nonbank third parties and then sold shortly after origination. These loans have been challenged by regulators and others on the theory that the nonbank marketing and servicing agent is the “true lender,” and therefore the loan is subject to state licensing and usury laws.  In November 2017, a bipartisan group of five House members introduced a bill (H.R. 4439) that is intended to address the “true lender” issue.