On November 27, Pennsylvania enacted HB 1128, which updates and consolidates the state’s Motor Vehicle Sales Finance Act (MVSFA) and Goods and Services Installment Sales Act (GSISA), and includes numerous changes relevant to auto finance companies. Among other things, the bill amends the MVSFA with regard to installment sales contracts, to, among other things: (i) require installment sale contracts to include a statement informing the buyer of possible additional rights under the state Unfair Trade Practices and Consumer Protection Law; (ii) add triggers allowing for an acceleration clause; (iii) require a holder to notify a buyer upon payment in full by specifying the obligation has been paid in full on the instruments which are to be returned to that buyer with delivery in 10 days of the tender date; and (iv) prohibit a buyer from waiving any provisions in the chapter, including any purported waiver affected by a contractual choice of the law of another jurisdiction contained in an installment sale contract. Other MVSFA amendments provide that only costs disclosed at the time of the installment sale can be included in the contract and specifically prohibit costs for repairs that arise after contract execution from being added to the original contract. The bill amends the GSISA to, among other things: (i) add new requirements related to repossession; (ii) specify new standards for closed-end and open-end credit agreements; and (iii) increase certain maximum allowable fees and finance charges. The changes took effect November 27, 2014.
On December 3, New York Governor Andrew Cuomo announced that the state Department of Financial Services (DFS) sent subpoenas to 16 online “lead generation” companies as part of its expanding investigation into online payday lending. The DFS alleges the target companies are engaged in deceptive or misleading marketing of illegal, online payday loans in New York, and claims lead generation companies offer access to quick cash to encourage consumers to provide sensitive personal information and then sell that information to, among others, payday lenders operating unlawfully in New York. The DFS publicly kicked off an investigation of online payday lending earlier this year when it sent letters to 35 online lenders, including lenders affiliated with Native American Tribes, demanding that they cease and desist offering allegedly illegal payday loans to New York borrowers. Under New York law, it is civil usury for a company to make a loan or forbearance under $250,000 with an interest rate exceeding 16% per year, and a criminal violation to make a loan with an interest rate exceeding 25% per year. The DFS cites as part of the basis for its expanded investigation consumer complaints about false and misleading advertising (including celebrity endorsements), harassing phone calls, suspicious solicitations, privacy breaches, and other issues.
On November 14, New York State Department of Financial Services (DFS) Superintendent Benjamin Lawsky issued a notice that the DFS intends to hold a public hearing on virtual currency regulation in New York City “in the coming months.” The hearing will focus on the interconnection between money transmission regulations and virtual currencies. Additionally, the hearing is expected to consider the need for and feasibility of a licensing regime specific to virtual currency transactions and activities (i.e. a “BitLicense”), which would include anti-money laundering and consumer protection requirements for licensed entities. The notice makes clear that no decisions on licensing or other regulation of virtual currencies has been made. Rather the hearing and license notice is part of the agency’s broader inquiry launched in August into the need for a regulatory framework specific to virtual currencies. With regard to potential licensing, the DFS would like stakeholders to consider: (i) what, if any, specific types of virtual currency transactions and activities should require a BitLicense; (ii) whether entities that are issued a BitLicense should be required to follow specifically tailored anti-money laundering or consumer protection guidelines; and (iii) whether entities that are issued a BitLicense should be required to follow specifically tailored regulatory examination requirements.
On November 13, New York Governor Andrew Cuomo signed AB 3601, a bill intended to protect payment card holders from liability for unauthorized use of unsolicited convenience checks. Effective immediately, cardholders are held harmless for unauthorized use of unsolicited convenience checks associated with their account. The New York Bankers Association opposed the bill because its title and the accompanying sponsor’s memo misstate the purpose of the bill as being an outright ban on the unsolicited mailing of convenience checks to consumers when, in fact, the bill does not ban the practice.
Recently, the consumer advocacy group Consumers for Auto Reliability and Safety announced that it submitted a new ballot initiative in California that would, among numerous other things, prohibit dealer markups in auto finance transactions. The text as proposed would prohibit, in connection with the assignment of a conditional sale contract for a motor vehicle, any seller or employee of a seller from accepting, and any purchaser of a conditional sale contract from paying to any person or entity, compensation of any kind for arranging, assigning, or otherwise transferring a loan that varies based on the interest rate or other finance charges, or varies based on any other factor related to such interest rate or finance charges. The prohibition would not apply to, among other things, (i) an assignment that is with full recourse or under other terms requiring the seller to bear the entire risk of financial performance of the buyer or (ii) an assignment that is more than six months following the date of the conditional sale contract. The proposal is in the early stages of California’s ballot initiative qualification process.
On October 23, New York Governor Andrew Cuomo announced a $3 million penalty against a mortgage lender that the New York State Department of Financial Services (DFS) determined engaged in deceptive practices concerning interest rate charges and related conduct. The DFS identified the violations during a 2010 examination. The consent order states that the lender (i) collected loan discount fees from certain borrowers to reduce the initial rate but failed to provide the discounted rates, (ii) facilitated originations through unlicensed originators, (iii) conducted business with unlicensed entities and through unauthorized websites and unlicensed branches, (iv) conducted business through improper “affiliated business arrangements,” (v) failed to disclose loan origination information, (vi) failed to issue commitment agreements to certain borrowers, and (vii) failed to properly maintain books and records. The lender consented to the penalty, agreed to refund $427,155 of unearned loan discount fees to 270 borrowers, and agreed to submit a written compliance program within 120 days, submit quarterly compliance progress reports over a three-year period, and take other corrective actions. The consent order noted that in 2011 the company entered into a $3.1M settlement with HUD over similar alleged conduct.
On October 18, New York DFS Superintendent Benjamin Lawsky commented on the New York Unified Court System’s proposal to require debt collectors to use standardized affidavits as evidence of ownership of debt when seeking default judgments in consumer credit actions following an assignment of the original creditor’s interest. Superintendent Lawsky urged the Court System to pursue “bolder reform,” including requiring debt collectors to (i) present “stronger affidavits” to prevent “robo-signing” and ensure debt collectors review a consumer’s file, (ii) include information about the reviewed debts in the affidavit, (iii) include documentation evidencing the debt with the complaint, (iv) send consumers a pre-complaint notice before commencing a collection lawsuit, and (v) demonstrate proof of service when moving for a default judgment. The Superintendent also recommended that consumers be provided an opportunity to vacate a default judgment if a debt collector violates court rules. The Court System is accepting comments on its proposal through December 4, 2013.
On October 17, Nevada Attorney General (AG) Catherine Cortez Masto announced that she had finalized an agreement with a financial institution that requires the financial institution to pay $11.5 million, without admitting fault, to resolve the AG’s investigation into the financial institution’s role in purchasing and securitization of subprime, Alt-A, and payment option adjustable rate mortgages. The investigation focused on whether certain lenders had deceived borrowers about the actual interest rate and payments on their loans, and had originated loans with multiple risk features that led to approval of loans without proper consideration of the borrowers’ ability to repay. The investigation also examined the extent to which the financial institution was aware of the lenders’ allegedly deceptive practices when it bought the loans, and whether the financial institution facilitated these lending practices by financing and purchasing such loans. In addition to the monetary penalty, the agreement stipulates that the financial institution will: (i) only finance, purchase, or securitize subprime mortgage loans in Nevada if it has engaged in a review of such loans and determined that the loans comply with the Nevada Deceptive Trade Practices Act and (ii) not securitize loans where upon review it has reason to believe that the lender has not adequately disclosed to the borrowers the existence of an initial teaser rate, the potential for negative amortization on a loan, the maximum adjusted interest rate or payments, and the potential for payment shock if payments increase after a loan reset or recast.
On October 17, the Massachusetts Division of Banks released final regulations intended to parallel and supplement new mortgage servicing requirements promulgated by the CFPB and included in National Mortgage Servicing Settlement. The new regulations generally (i) prohibit third-party mortgage servicers from initiating a foreclosure when an application for a loan modification is in process, (ii) require that third-party mortgage servicers ensure that a creditor has the right to foreclose and that any foreclosure-related documents are properly prepared and executed based on personal knowledge, and (iii) mandate that third-party servicers provide a single point of contact for a borrower, follow detailed loan modification procedures, communicate with borrowers in a timely manner, and establish policies and procedures that ensure effective monitoring and oversight of certain third party providers (e.g., law firms, foreclosure firms, etc.). The new regulations also, among other things, (i) amend the definition of “debt collector” to include active debt buyers, (ii) clarify the definition of net worth for debt collectors, (iii) expand the limitations on contact with a consumer by a debt collector to include cellular telephone and text messaging, and (iv) add significant events of a debt collector and third party loan servicer that must be reported. The new requirements are effective immediately.
On October 11, the State Regulatory Registry (SRR) proposed changes to (i) the uniform NMLS company, branch, and individual licensing forms developed by state regulators and used by all states through NMLS and (ii) the NMLS Mortgage Call Report (MCR). The proposal incorporates public comments received following an initial April 2013 proposal. The proposed licensing form changes would, among other things, (i) allow a company to designate more than one branch manager within an industry, (ii) revise business activity on company and branch forms, and (iii) collect other trade names on company and branch forms by agency and not by state. Changes to the NMLS licensing forms and certain changes to the format of the MCR are expected to be implemented in March 2014. The proposal notes that given expected changes to HMDA reporting requirements, the SRR will propose substantive changes to the MCR in 2014 with an expected implementation timeframe in 2015. Comments on the proposed changes are due by November 11, 2013.
On October 8, Florida’s Office of Insurance Regulation announced that it disapproved a lender-placed insurer’s 2013 rate filing and ordered the insurer to decrease its rate by 10%. The regulator also required the insurer to enter a consent order pursuant to which the insurer agreed to submit annual rate filings until further notice and to not engage in certain delineated business practices, including, for example, (i) paying commissions to a mortgage servicer on policies obtained by that servicer, (ii) paying contingent commissions based on underwriting profitability or loss ratios, (iii) issuing policies on mortgaged property serviced by an affiliate, and (iv) issuing reinsurance on policies with a captive insurer of any mortgage servicer.
Recently, the California Secretary of State announced that the proponents of a new initiative regarding personally identifying information (PII) may begin collecting petition signatures for their proposed ballot measure. The potential ballot measure would propose a constitutional amendment that would create a presumption that an individual’s PII—including financial or health information—is confidential when collected for a commercial or governmental purpose, and would create a presumption of harm when PII is disclosed without the subject’s authorization. The measure also would require a collector of PII to use all reasonably available means to protect it from unauthorized disclosure. The ballot measure proponents have until February 14, 2014 to collect 807,615 registered voters’ signatures in order to qualify it for the ballot.
On October 1, the Conference of State Bank Supervisors announced that five additional state agencies have implemented the new national SAFE MLO test, bringing the total number of participating state agencies to 35. The new test, which was announced in January and launched in April, includes a uniform state component to replace the state-specific component in adopting states.
On October 1, the Oregon Secretary of State published a final rule to implement numerous changes to the state’s notaries public regulations, including providing for electronic notarizations and electronic journals. The Secretary also released a summary of the changes. Notaries may notarize documents electronically after informing the Secretary of State of the format the notary will use by submitting notice via email, using the Electronic Notarization Notice form, along with an example of an electronic notarization. Any change to the way a notary conducts electronic notarizations—e.g. new vendor, new technology, changed appearance—requires a notary to provide notice of the change to the Secretary of State. A notary also may document an electronic notarization in either a paper or electronic journal, or both. The new rules took effect on September 1, 2013.
On October 3, Delaware Attorney General Beau Biden (DE AG) announced that his office sent letters to nearly 30 lending institutions asking for information about their compliance with the Servicemembers Civil Relief Act (SCRA). The letters ask the financial institutions to provide by October 16: (i) documentation of any internal SCRA compliance review, including the findings of any such review; (ii) all written policies, procedures and practices in place used to verify SCRA compliance; (iii) the number of customer files reviewed for SCRA compliance, both in Delaware and nationwide; (iv) documentation concerning any SCRA violations identified during reviews; (v) all written policies, procedures, and practices in place concerning the provision of remediation to account owners to address any judgments obtained in error or other actions taken in violation of the SCRA; (vi) documentation of steps taken to prevent future SCRA violations; and (vii) all SCRA employee training materials. The DE AG also sent a letter to the chairmen of the U.S. House and Senate veterans’ affairs committees, urging the lawmakers to change federal to allow state attorneys general to prosecute SCRA violations.