On December 28, 2018, New York Governor Cuomo signed into law amendments to the state’s General Business Law (GBL) that address the collection of family member debts.  The amendments made by Senate Bill 3491A become effective March 29, 2019.

While the legislative history indicates that the amendments are intended to address the collection of a deceased family member’s debts, they are drafted more broadly to prohibit “principal creditors and debt collection agencies” from: (a) making any representation that a person is required to pay the debt of a family member in a way that contravenes the FDCPA; and (b) making any misrepresentation about the family member’s obligation to pay such debts.

The GBL defines a “principal creditor” as “any person, firm, corporation or organization to whom a consumer claim is owed, due or asserted to be due or owed, or any assignee for value of said person, firm, corporation or organization.”  The amendments define a “debt collection agency” as “a person, firm or corporation engaged in business, the principal purpose of which is to regularly collect or attempt to collect debts: (A) owed or due or asserted to be owed or due to another; or (B) obtained by, or assigned to, such person, firm or corporation, that are in default when obtained or acquired by such person, firm or corporation.” 

In 2011, the FTC issued its final Statement of Policy Regarding Communications in Connection With the Collection of Decedents’ Debts to provide guidance on how it would enforce the FDCPA and Section 5 of the FTC Act in connection with the collection of debts of deceased debtors.  The policy statement provides that the FTC will not initiate an enforcement action under the FDCPA against a debt collector who (1) communicates for the purpose of collecting a decedent’s debts with a person who has authority to pay such debts from the assets of the decedent’s estate even if that person does not fall within the FDCPA’s definition of “consumer,” or (2) includes in location communications a statement that it is seeking to identify a person with authority to pay the decedent’s “outstanding bills” from the decedent’s estate.  It also contains a caution that, depending on the circumstances, contacting survivors about a debt too soon after the debtor’s death may violate the FDCPA prohibition against contacting consumers at an “unusual time” or at a time “inconvenient to the consumer.”

 

 

The NY Attorney General and the plaintiffs in Expressions Hair Design v. Schneiderman have filed a joint motion with the U.S. Court of Appeals for the Second Circuit asking the court to vacate the district court’s final judgment in the case, remand with an order to the district court to dismiss the complaint with prejudice, and dismiss the plaintiffs’ appeal as moot.

The complaint in Expressions Hair Design was filed by five merchants and their principals who alleged that New York’s “no credit card surcharge” law was an unconstitutional restriction on speech because it did not allow merchants to tell customers that they are paying more for using credit than for using cash or another payment method.  The district court had entered a judgment declaring the New York law unconstitutional and enjoining its enforcement against the plaintiffs but the Second Circuit reversed, ruling that the law did not implicate the First Amendment because it regulated a pricing practice, not speech.

The U.S. Supreme Court granted the plaintiffs’ petition for certiorari and ruled that the New York law did regulate speech, thereby making it subject to First Amendment scrutiny.  Because the Second Circuit had not considered whether, as a speech regulation, the law survived such scrutiny, the Supreme Court vacated the Second Circuit’s decision and remanded for the Second Circuit to consider that issue.

On remand, the Second Circuit certified to the New York Court of Appeals the question whether a merchant would comply with the New York law if it posted the total dollars-and-cents price charged to credit card customers (rather than posting a single cash price and indicating that an additional amount is added for credit card customers).  The New York court concluded that if a merchant posts its prices and charges lower prices to cash customers, it must post the price charged to credit card customers.  However, while concluding that the law did not allow a merchant to post a single cash price, the New York court determined that it did not prohibit a merchant from using the word “surcharge” or any other words to communicate to customers that the credit card price is higher than the cash price.

The next step in the case would have been for the Second Circuit to decide whether the New York law, as interpreted by the state’s Court of Appeals, was a valid restriction on commercial speech under U.S. Supreme Court precedent.  According to the NY Attorney General’s affirmations accompanying the joint motion, while further briefing was pending, the plaintiffs informed the NY Attorney General that they no longer wished to pursue any of their claims and wanted to dismiss their complaint, with prejudice.  The parties assert that the plaintiffs’ decision to withdraw their complaint moots the case.  Accordingly, they ask the Second Circuit to vacate the district court’s final judgment, instruct the district court to dismiss the complaint with prejudice, and dismiss the plaintiff’s appeal as moot.

The NY Attorney General’s affirmations also state that another factor weighing in favor of vacatur is that the plaintiffs’ decision to withdraw their complaint “should not leave intact a final judgment that declares a duly enacted state statute unconstitutional and enjoins the State and several District Attorneys from enforcing the statute against plaintiffs.”  As this statement suggests, once the district court’s decision is vacated, the NY Attorney General would be free to enforce the New York law against the plaintiffs–and other merchants–as interpreted by the New York Court of Appeals.  In other words, while a New York merchant can lawfully charge more to credit card than cash customers and label the differential amount a “surcharge,” the merchant would violate New York law if it only posted the cash price without also posting the higher price charged to credit card customers.

 

The OCC has filed a motion to dismiss the lawsuit filed in D.C. federal district court in October 2018 by the Conference of State Bank Supervisors (CSBS) to stop the OCC from issuing special purpose national bank (SPNB) charters to fintech companies.

The CSBS had previously filed a lawsuit challenging the OCC’s authority to grant SPNB charters to fintech companies at a time when the OCC had not yet decided whether it would move forward on its charter proposal.  That lawsuit was dismissed for failing to establish an injury in fact necessary for Article III standing and for lacking ripeness for judicial review.  The new lawsuit was filed in response to the OCC’s July 2018 announcement that it would begin accepting applications for SPNB charters from fintech companies.

In its brief, the OCC makes the following principal arguments in favor of dismissal:

  • CSBS cannot have standing to sue until the OCC approves an application for an SPNB charter because only then could a CSBS member suffer an injury in fact.
  • Because the OCC “remains several stages away from actually granting an SPNB Charter” and “has not finalized its decision to issue an SPNB Charter to a particular applicant,” the matter remains both constitutionally and prudentially unripe for judicial review.
  • Because the OCC’s July 2018 announcement was not a final agency action within the meaning of the Administrative Procedure Act, it is not subject to judicial review under the APA’s arbitrary and capricious standard.
  • The OCC’s July 2018 announcement does not represent a preemption determination to which notice and comment procedures apply “because the question of whether granting a proposed national bank will result in the preemption of any particular state consumer financial law is not relevant to the chartering process.”  (According to the OCC, in deciding whether to grant a charter, its focus is on ”the proposed institution’s prospects and whether it will operate in a safe and sound manner.”)
  • The OCC’s rule (12 C.F.R. Section 5.20(e)(1)) interpreting the term “business of banking” in the National Bank Act by reference to three core banking functions—receiving deposits, paying checks, or lending money—represents a reasonable interpretation of such term and supports treating any one of such functions as the required core activity for purposes of the OCC’s chartering authority.  Nothing in the NBA identifies deposit-taking as an indispensable function for a national bank to be engaged in the “business of banking.”

In September 2018, the New York Department of Financial Services (DFS) filed a second in a New York federal district court to block the OCC’s issuance of SPNB charters.  Like the first CSBS lawsuit, the first DFS lawsuit challenging the OCC’s authority to grant SPNB charters was dismissed for failing to establish an injury in fact necessary for Article III standing and for lacking ripeness for judicial review.

]Last month, the OCC submitted a letter to the court indicating that it intends to file a motion to dismiss the DFS lawsuit. The grounds for the motion set forth in the OCC’s letter substantially mirror its arguments for dismissal above in the CSBS lawsuit.  The DFS also submitted a letter to the court in which, in addition to outlining the arguments it would make in opposing an OCC motion to dismiss, it indicated that it intends to file a motion for a preliminary injunction to prevent the OCC from issuing any SPNB charters while the lawsuit is pending.

The next step in the case is likely to be the entry of an order by the court setting a motion schedule.  However, based on a docket entry indicating that a standing order was entered on December 27 requiring the U.S. Attorney’s Office to notify the court immediately upon the restoration of DOJ funding, it appears any further developments will not occur until the partial government shutdown ends.

 

 

New York Governor Andrew Cuomo has nominated Linda Lacewell to become Superintendent of the state’s Department of Financial Services.  Ms. Lacewell would replace Maria Vullo who announced last month that she will leave DFS on February 1.

Ms. Lacewell most recently served as Governor Cuomo’s Chief of Staff.  She previously served as executive director of a cancer foundation initiative in California and as Governor Cuomo’s Chief Risk Officer.  Before working in state government, Ms. Lacewell worked for a decade as a federal prosecutor in the Office of the U.S. Attorney for the Eastern District of New York.

Last September, Ms. Vullo filed a second lawsuit in a New York federal district court to stop the Office of the Comptroller of the Currency from issuing special purpose national bank charters to fintech companies.  It has been suggested that Ms. Lacewell might take a more friendly view of fintech because of her prior involvement with OpenNY, an open data initiative.

Ms. Lacewell’s nomination must be approved by the New York Senate.

 

 

Maria Vullo, the current Superintendent of the New York Department of Financial Services, has announced that she will leave DFS on February 1, 2019.

Ms. Vullo, who has served as Superintendent since 2016, has been an aggressive regulator.  In September 2018, she made a public announcement stating that the DFS intended to pursue what appeared to be a disparate impact theory arising out of indirect auto finance transactions.  Also in September,  Ms. Vullo filed a second lawsuit in a New York federal district court to stop the Office of the Comptroller of the Currency from issuing special purpose national bank charters to fintech companies.

 

 

New York has enacted legislation that requires creditors to provide new disclosures when using devices to remotely disable vehicles, commonly referred to as “kill switches.”  The new law took effect immediately upon its signing by Governor Cuomo on October 2, 2018.

First, the law amended New York’s Uniform Commercial Code to add a definition for a “payment assurance device.”  The term is defined as “any device installed in a vehicle that can be used to remotely disable the vehicle.”

Second, the law amended the provisions of New York’s General Business Law dealing with debt collection procedures.  The law amends the list of prohibited practices to add that “no principal creditor” or its agent shall remotely disable a vehicle using a “payment assurance device” to repossess a vehicle “without first having given written notice of the possible remote disabling of a vehicle in the method and timetable agreed upon by the consumer and the creditor in the initial contract for services.”  A “principal creditor” is defined as “any person, firm, corporation or organization to whom a consumer claim is owed, due or asserted to be due or owed, or any assignee for value of said person, firm, corporation or organization.”

The written notice required to be sent before using a “payment assurance device” must:

  • Be mailed by registered or certified mail “to the address at which the debtor will be residing on the expected date of the remote disabling of the vehicle”
  • Be postmarked no later than 10 days “prior to the date on which the principal creditor or his agent obtains the right to remotely disable the vehicle”

Violations of the debt collection prohibitions in New York’s General Business Law are deemed a misdemeanor and the NY Attorney General or the district attorney  of  any county can bring an action to enjoin violations.

 

If you’ve followed the status of the CFPB’s enforcement actions under the Equal Credit Opportunity Act related to auto dealer finance charge participation, you probably would have concluded that those cases are unlikely to resurface.  Not only did Congress override the CFPB’s Bulletin describing the underlying legal theory, but then the Bureau’s new leadership made a statement immediately thereafter describing the cases as an “overreach.”

Traditionally, state agencies have not been very active with regard to fair lending issues, but the New York Department of Financial Services recently made a public announcement in which it stated its intention to pursue what looks like the same disparate impact theory arising out of indirect auto finance transactions.  The announcement is entitled “DFS Takes Action to Protect New Yorkers from Unfair Auto Lending Practices as Federal Government Rolls Back Consumer Protections,” and “reminds lenders of their liability for any discrimination that may result from markup and compensation policies with third parties such as car dealers.”  The press release cites and relies on New York’s state credit discrimination law, NY Executive Law § 296-A, which is part of New York’s Human Rights Law.  (Section 296-A prohibits discrimination “in the granting, withholding, extending or renewing, or in the fixing of the rates, terms or conditions of, any form of credit, on the basis of race, creed, color, national origin, sexual orientation, military status, age, sex, marital status, disability, or familial status.”)

In particular, the DFS press release urges auto finance companies to perform a similar set of steps as those listed in the now-overridden CFPB Bulletin:

  • “Consider reducing dealer discretion by placing limits on dealer markup, or eliminating dealer discretion to markup interest rates by using a different method of dealer compensation, such as a flat fee for each transaction, that does not potentially result in discrimination.”
  • “Monitor both its whole portfolio and specific dealers for compliance with fair lending policies and procedures.”
  • “The lender should take prompt corrective action if it finds any differences in interest rates that are unexplained by objective credit factors, such as restricting or eliminating a dealer’s ability to mark up, terminating the lender’s relationship with a dealer, and providing restitution to affected consumers.”

So, the NYDFS has essentially staked out the position that it will enforce a set of expectations similar to those used by the CFPB over the past several years.   We would assume that non-bank auto finance companies who purchase retail installment contracts in New York would be subject to the DFS requirements, and subject to examinations by DFS regarding this issue.  The same would be true for any banks over which the NYDFS has authority.

But will New York be willing to engage in enforcement with respect to this highly controversial, and potentially fatally flawed, theory of liability against indirect auto finance companies?  Will it adopt an attitude regarding analytical methods and the use of controls that inflates the appearance of disparities, as the CFPB did?  And having won a major victory in securing the Congressional override of the CFPB’s Bulletin, will the auto finance industry be willing to fight one of these cases in court, based on the well-documented legal and factual problems with the “portfolio” theory of assignee liability based on BISG-based statistical analyses?  We’ll all have to stay tuned to find out.  But it appears that the demise of the dealer pricing disparate impact issue arising from the Congressional override earlier this year may not yet be complete.

 

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 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”).

 

 

Identical bills have been introduced in the New York Assembly (A08938) and Senate (S07294) that would direct the New York Department of Financial Services (DFS) to issue a report on online lending by July 1, 2018.

The bills are intended to amend legislation signed into law by New York Governor Cuomo on December 29, 2017 (S6593A) that created a seven-person task force to study online lending and issue a report by April 15, 2018 containing specified information.  The task-force members are to consist of three individuals appointed by the Governor, two members appointed by the Temporary President of the Senate, and two members appointed by the Speaker of the Senate.

The bills would eliminate the task force and provide that the report is to be prepared by the DFS “in consultation with stakeholders, including online lenders, consumers and small businesses.”  The information in the DFS report must include the following:

  • An analysis of online lenders presently operating in New York, including “the common means and methods of their operations, and business,” lending practices of the online lending industry, including disclosure practices, interest rates and costs charged, the primary differences between online lending products and services and those offered by traditional lending institutions, the risks and benefits of products offered by online lenders, and the forms of credit that would be available to borrowers in the absence of online lending opportunities;
  • The types and availability of credit products for individuals and businesses;
  • An analysis of  available data regarding complaints, actions and investigations related to online lenders; and
  • A survey of existing state and federal laws and regulations that apply to online lending and the impact of such laws and regulations on consumers and access to online lenders.