This afternoon, Pew Charitable Trusts will host an event in Washington, D.C. focusing on Ohio’s Fairness in Lending Act.  Enacted in July 2018, the Act places new limitations on payday loans including an interest rate cap, a limit on the total cost of a loan, and other structural restrictions.  The Act is viewed as a significant victory for consumer advocates with the potential to be followed through legislation in other states or through ballot initiatives.  (Last week, Colorado voters passed a ballot initiative that places a 36 percent APR cap on payday loans.)

At the event, Ohio legislators from both sides of the aisle, business leaders, advocates, and researchers will discuss the Act.  According to Pew’s description of the event, the topics will include a discussion of strategies “to advance meaningful reform in other states with payday loans.”

 

 

It has been reported that, without announcement or warning, the regulations applicable to third-party debt collectors in Massachusetts may have changed.  While the state’s Division of Banks (DOB) and the state’s Attorney General (AG) have traditionally regulated, respectively, third-party debt collectors and first-party creditors, the AG is reported to have changed its website recently to include third-party debt collectors as entities that it regulates.

Such a change could have significant implications because the AG’s rules differ from the DOB’s rules.  For example, the verification requirements under the AG’s rules contain more procedures than the DOB’s rules.  We expect industry trade groups to seek clarification from the DOB and AG.

 

 

 

 

On September 28, 2018, the Maryland Commissioner of Financial Regulation issued a notice advising companies servicing student loans of Maryland borrowers to provide their contact information to the state’s new Student Loan Ombudsman by November 15, 2015.

Maryland’s “Financial Consumer Protection Act of 2018” went into effect on October 1, 2015. The Act imposes a number of new regulations, and also creates the post of Student Loan Ombudsman. Under the Act, all loan servicers engaged in servicing student loans made to Maryland residents must provide the Ombudsman with the name, phone number and e-mail address of the individual designated to represent the servicer in communications with the Ombudsman. The deadline to comply with this requirement is November 15, 2018.

The Ombudsman is charged with receiving and working to resolve complaints submitted by student borrowers. The Ombudsman will also analyze and compile data related to such complaints, and the analysis of that data will be disclosed to the public along with the names of student loan servicers engaging in any abusive, unfair, deceptive or fraudulent practices.

In addition to its responsibilities related to student borrower complaints, the Ombudsman will also engage in educational efforts with both students and the state legislature. With respect to students, the Ombudsman will help student loan borrowers to understand their rights and responsibilities under the terms of their student loans. The Ombudsman is also directed to establish a student loan borrower education course by October 1, 2019.

The Ombudsman will also provide annual reports to the governor and Maryland General Assembly, along with making recommendations for statutory and regulatory procedures to resolve student loan borrower issues. These recommendations are to include an assessment of whether Maryland should require licensing or registration of student loan servicers.

On September 19, 2018, California enacted AB-3212.  The Bill amends the California Military and Veterans Code to expand the protections offered to qualifying servicemembers under state law and to impose new criminal penalties for certain violations of its provisions.  Some of the key changes, which go into effect January 1, 2019, are as follows:

Expanded Protections

  • Extends most protections to 120 days after military service ends (prior provision extended protections for 60 days after the end of military service).
  • Expands the 6% interest rate cap to include student loans, with the 6% rate to remain in effect for one year after the period of military service ends.
  • Extends the ability to defer payments on certain obligations to include student loans.
  • Clarifies that interest in excess of 6 percent per year that would otherwise be incurred but for the interest rate cap is “forgiven” and periodic payments “shall be reduced by the amount of interest forgiven”.
  • Extends the right to terminate leases after entry into military service to include vehicle leases.
  • Clarifies that penalties may not be imposed on the nonpayment of principal or interest during the period in which payments are deferred on an obligation pursuant to a court order.

Written Response Required

  • Requires a person receiving a request for relief from a servicemember to respond within 30 days acknowledging the request, setting forth any reasons the person believes the request is incomplete or the servicemember is not entitled to the relief requested, specifying the specific information or materials that are missing from the request, and providing contact information the servicemember can use to contact the person regarding the request. If after receiving a request from the servicemember, the recipient does not respond within 30 days, the recipient waives any objection to the request and the servicemember is automatically entitled to the relief sought.

Prohibitions on Sales, Foreclosures, and Seizures of Property

  • Extends the bar on sale, foreclosure, or seizure of property for non-payment to the period of military service plus one year (prior provision was for the period of nine months after the end of military service).
  • Extends the bar on enforcing storage liens during the period of military service and for 120 days thereafter (prior provision was until three months after the end of military service).
  • Requires a sworn statement of compliance by any person who files or completes a notice, application or certification of lien sale or certificate of repossession.

Protections Related to Court Proceedings

  • Extends the ability of courts to stay proceedings involving servicemembers as a plaintiff or defendant to 120 days after the end of the military service (prior provision was until 60 days after the end of military service).
  • Permits a service member who is granted an initial stay to apply for an additional stay by showing there is a “continuing military effect” on the servicemember’s ability to appear. If the court refuses to grant an additional stay, the court shall appoint counsel to represent the servicemember in the proceeding.
  • Requires courts to stay for a minimum period of 90 days any proceedings in which (a) there may be a defense to the action that cannot be presented without the presence of the servicemember defendant; or (b) counsel cannot after due diligence contact the servicemember defendant to determine if a meritorious defense exists.
  • Limits the ability of a court-appointed attorney to waive defenses that a servicemember may have or to otherwise bind the servicemember whenever the attorney cannot locate the servicemember through a new statutory provision.

Credit Reporting

  • Prohibits a creditor or consumer reporting agency from making an annotation in the servicemember’s record that the person is on active duty status. A violation of this provision is a misdemeanor, punishable by imprisonment of not more than one year or a fine not to exceed one thousand dollars, or both.

Debt Collections

  • Prevents a debt collector from falsely claiming to be a member of the military in attempting to collect any obligation. A violation of this new provision is a misdemeanor, punishable by imprisonment of not more than one year or a fine not to exceed one thousand dollars, or both.
  • Expressly prohibits a debt collector from contacting the servicemember’s military unit or chain of command in connection with the collection of any obligation unless the debt collector obtains written consent from the servicemember after the obligation becomes due and payable. A violation of this new provision is a misdemeanor, punishable by imprisonment of not more than one year or a fine not to exceed one thousand dollars, or both.

Scope of Coverage

These provisions in the California Military and Veterans Code apply broadly to members of the Armed Forces (Army, Navy, Air Force, Marine Corps, and Coast Guard) who are on active duty as well as any member of the state militia (defined as the National Guard, State Military Reserve and the Naval Militia) who are on full-time active state service or full-time active federal service.  Creditors are advised to consult with counsel to determine whether these new provisions will apply to specific servicemember borrowers who have contacts with California.

Governor Brown yesterday signed into law SB 1235, a bill requiring consumer-like disclosures to be made on certain commercial finance products, including small business loans and merchant cash advances, among other things.  Contrary to reports in certain press outlets, the law will not take effect by a date certain.  Rather, the California Department of Business Oversight (“DBO”) is now required to adopt regulations addressing details such as calculation methods and the time, manner, and format of the new disclosures.  The DBO also may specify the date by which finance companies are required to comply.

We understand that the DBO is unlikely to act until the new Commissioner takes office, so compliance with the new law probably will not be required until well into 2019, if not 2020.  That said, it will be critical for the industry to engage with the DBO regarding the forthcoming regulations and when compliance with them will be required.

Less than three months after California passed the California Consumer Privacy Act of 2018 (CCPA), Governor Jerry Brown signed SB 1121 this week, making a number of technical and substantive changes to the law.

Of particular note: SB 1121 modifies the financial institution carve-out language in CCPA section 1798.145(e). While the change is a welcome development for entities subject to regulation under the Gramm-Leach-Bliley Act (GLBA), it does not grant full exemption from the CCPA. Therefore, GLBA-regulated entities that collect information online will need to analyze the CCPA’s requirements and how they apply to a specific business.

The original carve-out language provided that:

“This title shall not apply to personal information collected, processed, sold, or disclosed pursuant to the federal Gramm-Leach-Bliley Act (Public Law 106-102), and implementing regulations, if it is in conflict with that law.”

As we have previously discussed, that language raised a number of issues, such as what would constitute a “conflict” between the GLBA and the CCPA, and whether the language was even consistent with the GLBA insofar as personal information is not collected, processed, sold, or disclosed pursuant to the GLBA. The provision also failed to address the relationship between the CCPA and California’s Financial Information Privacy Act.

The new language tries to resolve some of those issues, stating:

“This title shall not apply to personal information collected, processed, sold, or disclosed pursuant to the federal Gramm-Leach-Bliley Act (Public Law 106-102), and implementing regulations, or the California Financial Information Privacy Act … . This subdivision shall not apply to Section 1798.150.”

The new language removes the phrase “if it is in conflict with that law,” incorporates the California Financial Information Privacy Act, and adds a sentence providing that financial institutions are still subject to Section 1798.150. The preamble explains those changes as follows:

“The bill would also prohibit application of the act to personal information collected, processed, sold, or disclosed pursuant to a specified federal law relating to banks, brokerages, insurance companies, and credit reporting agencies, among others, and would also except application of the act to that information pursuant to the California Financial Information Privacy Act.”

While the revised language is no doubt welcomed by GLBA-regulated entities, it should not be interpreted as a full exemption. Rather, GLBA entities will remain subject to the provisions and requirements of the CCPA if they engage in activities falling outside of the GLBA—which they almost certainly do.

By way of explanation, the GLBA regulates financial institutions’ management of nonpublic personal information, which is defined in 15 U.S.C. § 6809 as personally identifiable financial information: 1) provided by a consumer to a financial institution; 2) resulting from any transaction with the consumer or any service performed for the consumer; or 3) otherwise obtained by the financial institution.

The CCPA defines “personal information” much more broadly to include “information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household.” The CCPA identifies numerous examples such as online identifiers, Internet Protocol addresses, email addresses, browsing history, search history, geolocation data, and information regarding a consumer’s interaction with a website or online application or advertisement. Notably, the CCPA’s definition also includes any “inferences drawn” from any personal information that is used “to create a profile about a consumer reflecting the consumer’s preferences, characteristics, psychological trends, predispositions, behavior, attitudes, intelligence, abilities, and aptitudes.”

Therefore, to the extent that GLBA-regulated entities are using targeted online advertising, tracking web page visitors, and/or collecting geolocation data—to name a few examples—either through their web pages or apps, they will need to analyze the CCPA’s requirements.

As for the new statutory language providing that “[t]his subdivision shall not apply to Section 1798.150,” the impact of that sentence cannot be overstated.

Section 1798.150 sets forth a private right of action for consumers to seek statutory damages of not less than $100 and not greater than $750 “per consumer per incident or actual damages, whichever is greater” if the consumer’s information “is subject to an unauthorized access, exfiltration, theft, or disclosure as a result of the business’s violation of the duty to implement and maintain reasonable security procedures and practices.” In other words, GLBA-regulated entities will still be subject to millions of dollars of potential damages if they experience a data breach.

Noting, among other things, “retrenchment” on the federal level, the Maryland Financial Consumer Protection Act of 2018 (HB 1634) was signed into law on May 15, 2018.

The Act’s provisions take effect October 1, 2018 and include the following:

  • Maryland Consumer Protection Act (MCPA):  Adds “abusive” practices to the existing proscription against “unfair and deceptive trade practices” and adds violations of the federal Military Lending Act and the federal Servicemembers Civil Relief Act to the list of statutes that are considered to be per se violations of the UDAAP proscription.  Increases the maximum civil penalties for violations of the MCPA by merchants to $10,000 for a violation and $25,000 for a repeat violation. 
  • Increases in civil penalty amounts.   The law increases permissive civil penalty amounts for violations of laws, regulations, rules or orders over which the Commissioner of Financial Regulation has jurisdiction to a maximum of $10,000 for a first violation and a maximum of $25,000 for each subsequent violation.  Similar amendments were made throughout the statutes governing activity within the jurisdiction of the Commissioner; in some instances (e.g., collection agency, mortgage lending, mortgage loan originators, money transmission, debt management services), the amendments increase the maximum civil penalties that may be imposed when a violator fails to cease and desist or take affirmation action to correct the violation required by an order. 
  • Requires the Office of the Attorney General and the Commissioner of Financial Regulation, whenever considered appropriate, to use their authority under Section 1042 of the Dodd-Frank Act to bring civil actions or other appropriate proceedings and requires appropriation of at least $1,000,000 in general funds (at least $700,000 for the Attorney General, and at least $300,000 for the Commissioner) for purposes of enforcing consumer protection laws. 
  • Changes relating to collection activity.   The law changes the definition in the Maryland Collection Agency Licensing Act of “licensed collection agency” from a person who is licensed to a person who is required to be licensed, regardless of whether the person is actually licensed, and also provides, under the Maryland Debt Collection Act that it is a prohibited activity for a collector to engage in unlicensed debt collection in violation of the Maryland Collection Agency Licensing Act or to engage in any conduct in violation of Sections 804 to 812 of the federal Fair Debt Collection Practices Act (“FDCPA”). (Sections 804 to 812 of the FDCPA: impose requirements and restrictions on debt collectors when communicating with any person other than the consumer for the purpose of acquiring location information about the consumer; impose requirements and restrictions on debt collectors when communicating with the consumer or with third parties in connection with the collection of any debt; prohibit debt collectors from engaging in conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt; prohibit a debt collector from using false, deceptive, or misleading representations or means in connection with the collection of any debt; prohibit a debt collector from using unfair or unconscionable means to collect or attempt to collect any debt; and prohibit the design, compilation and furnishing of any form knowing that such form would be used to create the false belief in a consumer that a person other than the creditor is participating in the collection or attempted collection of a debt allegedly owed to such creditor when in fact such person is not so participating.  The cited FDCPA provisions also govern: the timing and content of required written notices to consumers and the required conduct of a debt collector when a consumer notifies the debt collector that it disputes any portion of the debt or requests information regarding the original creditor; application of single payments where a consumer owes multiple debts and a debt has been disputed; and venue for legal actions brought by debt collectors.)   
  • Requires a Student Loan Ombudsman.  The Ombudsman, in consultation with the Commissioner of Financial Regulation, must:
  • receive and review complaints from student loan borrowers;
  • attempt to resolve complaints;
  • compile and analyze complaint data;
  • disseminate information about student education loans and servicing by helping student loan borrowers understand their rights and responsibilities, providing information to the public, state agencies, elected officials and others relating to borrower problems and concerns, and by providing information about the availability of the Ombudsman to borrowers and potential borrowers, state higher education institutions, and student loan servicers; and
  • establish a student loan borrower education course on or before October 1, 2019.

The Ombudsman is also tasked with:

  • analyzing and monitoring federal, state, and local laws, regulations and policies on student loan borrowers and reporting its findings to the General Assembly;
  • disclosing to the General Assembly the complaint data it compiles, noting trends in the data and identifying the names of student loan servicers engaging in any abusive, unfair, deceptive, or fraudulent practices; and
  • making recommendations to the General Assembly regarding methods to resolve borrower issues/concerns and for any necessary changes to state law to ensure a fair, transparent, and equitable industry, including whether licensing or registration of student loan servicers should be required in Maryland.

The Commissioner is required to report annually on the implementation and effectiveness of the Ombudsman.  The Ombudsman may refer any matter that is abusive, unfair, deceptive or fraudulent to the Office of the Attorney General for civil enforcement or criminal prosecution.

  • Requires “student loan servicers,” as defined, to designate an individual to represent the servicer in communications with the Ombudsman and provide contact information to the Ombudsman.  
  • Requires the Office of the Commissioner of Financial Regulation to study Fintech regulation.  The law requires the Office of the Commissioner of Financial Regulation to assess whether it possesses enough statutory authority to regulate “Fintech firms” or “technology-driven nonbank companies” who compete with companies engaged in the delivery of financial services using traditional methods, to identify gaps in the regulation of Fintech firms, including any specific types of companies that are not subject to regulation under Maryland law, and to report its findings and recommendations to the General Assembly by December 31, 2019. 
  • Requires the Maryland Financial Consumer Protection Commission to conduct various studies and include recommendations in its 2018 report to the Governor.   The Commission’s studies are to include: crypotcurrencies, initial coin offerings, cryptocurrency exchanges and other blockchain technologies; the Model State Consumer and Employee Justice Enforcement Act and similar laws adopted in other states; the possible exemption of retailers of manufactured homes from the definition of mortgage originator in federal law; and the U.S. Department of Labor rule and any SEC actions addressing conflicts of interest of broker-dealers offering investment advice by aligning the standard of care for broker-dealers with that of the fiduciary duty of investment advisors.

It appears likely that California Governor Jerry Brown will sign a bill passed on August 31 by the state’s Senate, Senate Bill 1235, which would create consumer-style disclosure requirements for certain commercial loans and other finance products, such as merchant cash advances and factoring transactions.

Notably, the new disclosure requirements would apply to sponsors of bank-model lending programs in addition to companies directly extending certain forms of commercial credit pursuant to California Finance Lender licenses.  The requirements would apply whenever the company receiving financing is located in California, even if the company providing the financing is located outside the state.  Although the bill contains several ambiguities and potential loopholes created by last-minute amendments, Governor Brown is expected to sign it over industry opposition.

The bill’s central feature is a requirement that “providers” make a series of disclosures before consummation of a covered transaction and must obtain the recipient’s signature on the disclosures which include the “total dollar cost of the financing” and the “total cost of the financing expressed as an annualized rate.”  As used in the bill, the term “provider” includes both a “person who extends a specific offer of commercial financing to a recipient,” and certain bank-model program sponsors, i.e., “a nondepository institution, which enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution.”

“Commercial financing” is defined broadly to include “an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes.”  This would appear to include commercial credit cards but not commercial sales finance contracts.  There are exemptions and carve-outs for, among other things, depository institutions, financings of more than $500,000, closed-end loans with a principal amount of less than $5,000, and transactions secured by real property.

For more information about the bill, see our legal alert.