On May 20, the NYDFS released a statement announcing that Superintendent Benjamin Lawsky will depart in late June. Lawsky, who became the newly created agency’s first superintendent in May 2011, stated: “I am deeply proud of the work our team has done building this new agency and helping strengthen oversight of the financial markets. We have assembled a great team at NYDFS and I have full confidence that the critical work of this agency will continue seamlessly moving forward.”
On May 19, NYDFS Superintendent Lawsky delivered remarks at the Mortgage Bankers Association’s National Secondary Market Conference & Expo regarding New York’s “broken judicial foreclosure process.” Noting that the state’s average of over 900 days from the date of filing to sale is more than a year longer than the national average, Lawsky stated that the “current system hurts virtually everyone involved in the foreclosure process,” including municipalities, lenders and mortgage investors, the courts and, most importantly, homeowners and their families. In a report issued the same day, NYDFS details the causes of the problems. In response, Lawsky proposed a number of legislative reforms intended to facilitate the “twin goals of protecting homeowners from foreclosure abuses and encouraging the efficient return of foreclosed properties to the market.” Lawsky emphasized that, “contrary to popular belief, these goals are not mutually exclusive. The key to achieving both is having a sound and timely judicial foreclosure process that is fair to both homeowners and the mortgage industry.” The specific reforms include proposals to modify the mandatory settlement conferences that cause much delay early in the litigation process, to improve disclosures to homeowners regarding their rights and obligations, and to expedite the foreclosure process for vacant and abandoned “zombie homes.”
On May 15, the California Department of Business Oversight (DBO) announced that it filed a complaint against a debt payment company for allegedly operating in California without having the proper license and for charging fees in excess of statutory limits. According to the complaint, the company contracts with borrowers to make their mortgage, credit card, or other loan payments for them, and then debits their account every two weeks in an amount equal to one-half of the required monthly payment on the loan. This payment schedule results in 26 debits per year, equating to an extra month’s worth of payments. The company claims that the extra debits are used to pay down the principal on the loan. The lawsuit alleges, however, that the California Financial Code requires companies providing debt payment services to be licensed as “proraters” by the DBO, and the company has never had such a license. The complaint also alleges that the company’s “set up fee” of one-half of the monthly loan payment amount often far exceeded the $50 limit on origination fees imposed by state law, and that the company’s advertising misrepresented how much its customers would pay for services and how much they would save on interest. Since 2009, the company has collected more than $300 million from its 10,000-25,000 customers for distribution to creditors and earned more than $10 million in fees.
FTC Lobbies Michigan Legislature to Repeal Ban On Direct-to-Consumer Sale of Motor Vehicles by Auto Manufacturers
On May 11, the FTC released a statement regarding the agency staff’s May 7 letter to Michigan Senator Booher, which concerns pending SB 268 – an act to regulate the sale and servicing of automobiles. The proposed legislation seeks to create an “exception to current law that prohibits automobile manufacturers from selling new vehicles directly to consumers.” While the letter states that the bill likely will encourage competition and benefit consumers, the staff’s view is that the legislation’s scope is too narrow and “would largely perpetuate the current law’s protectionism for independent franchised dealers, to the detriment of Michigan car buyers.” The focal point of the FTC staff’s letter is that, “absent some legitimate public purpose, consumers would be better served if the choice of distribution method were left to motor vehicle manufacturers and the consumers to whom they sell their products.”
On May 12, the NYDFS announced newly approved title insurance industry rates for mortgage refinancing transactions, which is just one of the steps the NYDFS is planning to take to reform and lower title insurance rates. The new rates vary depending on the term, size, and duration of the loan, and they are anticipated to provide significant savings to New York homeowners.
On May 1, Governor Mary Fallin (R-OK) signed into law SB 465, which amends a current law imposing a $100 penalty on a secured party if it does not furnish a release of a lien after seven days. Under the new law, a $100 penalty will be imposed each day following the first seven days – the penalty can reach $1,500 or the value of the vehicle, whichever is less. The law is effective November 1, 2015.
On May 12, Governor Larry Hogan (R-MD) signed HB 313, which will require auto dealers to provide notice to the purchaser/lessee before the dealer-arranged third-party financing is approved. The law requires the dealer to “notify a buyer in writing if the terms of a certain financing or lease agreement are not approved by a third-party finance source within a certain period of time.” Specifically, the dealer has four days from the delivery of the vehicle to notify the purchase/lessee of the third-party rejection. If the sale of the vehicle is canceled, the purchaser/lessee must return the vehicle to the dealer within two days of receiving the written notice. The new law is effective October 1, 2015.
On May 7, NYDFS granted its first charter to a New York-based commercial Bitcoin exchange. In February, the company requested a charter under the NYDFS’s application process, which included a thorough review of the company’s anti-money laundering, capitalization, consumer protection, and cyber security standards. Under the New York Banking Law, the company can start its operations immediately, but is subject to continual supervision by the NYDFS. Indeed, Superintendent Lawsky noted, “regulation will ultimately be important to the long-term health and development of the virtual currency industry.”
On May 4, Illinois AG Lisa Madigan’s office announced that it filed five lawsuits against companies that allegedly scammed borrowers into paying hundreds to thousands of dollars in upfront fees with the false hope that they would be paying off student loan debt or have the debt forgiven entirely. The lawsuits allege that the companies violated the 2010 Illinois Debt Settlement Consumer Protection Act, which bans companies from charging upfront fees for services that claim to settle debt. According to the lawsuits’ allegations, the companies falsely advertised that they could stop wage garnishments, reduce monthly payments, and remove default statuses. In addition to the allegations under the Debt Settlement Consumer Protection Act, the companies are being charged with violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, and the Credit Services Organizations Act. The May 4 lawsuits follow the Illinois AG office’s July 2014 suits against two companies for violations of the same three acts.
On May 4, Indiana Governor Michael Pence signed H.B. 1456 into law, amending the state’s civil relief act to include protections for servicemembers under the federal Servicemembers Civil Relief Act (SCRA). The legislation also requires the Indiana National Guard provide both active and reserve members a list that details the rights a servicemember or a dependent of a servicemember are entitled to under the state and federal SCRA. The law will take effect on July 1, 2015.
On April 29, New York Governor Andrew Cuomo unveiled new title insurance regulations aimed at reducing title insurance closing costs of up to 20 percent for new homebuyers by eliminating kickbacks and other improper expenditures within the title insurance industry. The new regulations follow an NYDFS investigation which revealed that title insurance companies and their agents routinely spent excessive amounts on meals and entertainment for attorneys, real estate professionals and others in exchange for referrals on new business, passing along the costs to consumers’ insurance premium. In addition, the regulations also impose a cap on fees charged for searches and other services associated with the issuance of a title insurance policy, and requires title companies to submit filings, once every three years, affirming that the title insurance rates are not excessive or discriminatory.
On April 23, Washington Governor Jay Inslee signed bill H.R.1078, which requires covered entities to contact consumers living within the state as soon as possible, and no more than 45 days, after the discovery of a breach of personal information. Under the new law, failure to notify consumers of a data breach would violate the state’s Consumer Protection Act. The legislation also requires covered entities to notify the state attorney general and grants the attorney general authority to pursue enforcement actions on behalf of the state or consumers living within the state. The new law goes into effect July 24, 2015.
Tennessee Enacts Legislation Requiring Payment Service Providers to Provide Adequate Disclosures to Merchants
On April 17, the Tennessee Governor Bill Haslem signed H.B. 547, which requires the disclosure of fees and other details in contracts entered into by payment service providers with merchants located within the state. The legislation requires the payment service providers to provide merchants with information detailing where the merchant can obtain access to operating rules, regulations, and bylaws under the agreement. In addition, the law requires payment service providers to disclose (i) the effective date of the agreement; (ii) terms of the agreement; (iii) any provisions relating to early termination or cancellation of the agreement; and (iv) a full schedule of all payment services fees with respect to the credit card, debit card, or other payment services under the agreement. The law also requires payment service providers to supply merchants with a monthly statement of fees, total value of transactions, and in some cases the aggregate fee percentage.
GA Department of Banking and Finance Orders Florida Mortgage Lender to Shut Down for Unlicensed Lending Activities
On April 8, the Georgia Department of Banking and Finance issued an Order to Cease and Desist (Order) to a Florida-based mortgage lender. The lender allegedly engaged in residential mortgage origination, brokering, and/or lending activities without having a valid license or the appropriate exemption from the state’s licensing requirements in violation the Georgia Residential Mortgage Act. The Order is final 30 days from the issuance date, but the Department can rescind the Order if, within that 30 day period, the company provides adequate documentation showing that it is either properly licensed or qualifies for exemption.
On April 13, the Georgia Department of Banking and Finance (Department) entered into a Consent Order (Order) with a Pennsylvania-based mortgage lender and its owners for failing to file a timely application with the state regulator. Specifically, the Order was entered into with the lender to resolve a Notice of Intent to Revoke and proposed Orders to Cease and Desist for allegedly, among other things, allowing the acquisition of 10 percent or more of the ownership of a Georgia licensed entity without first filing an application with the Department, conducting business with an unlicensed person who is not exempt from licensing, employing a felon, and making false statements or misrepresenting material facts in mortgage loan documents. Under terms of the Order: (i) the lender must surrender its mortgage license and pay a $5,000 fine; (ii) one of its owners must surrender his MLO license, must pay two fines of $1,000 each to both the Department and the State Regulatory Registry, and is prohibited from being employed by a licensed Georgia mortgage broker or lender for five years; and (iii) another owner must contribute $1,000 to the State Regulatory Registry and is prohibited for five years from acquiring more than 10% voting shares of a Georgia licensed company. The Order also prohibits both aforementioned owners from: (i) applying for mortgage loan originator, mortgage broker, or mortgage lender licenses; (ii) serving as a director, officer or any other equivalent role for a Georgia licensee; and (iii) acting as a branch manager for a Georgia branch of a Georgia licensed mortgage broker or lender.