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Department of Education Withdraws Student Loan Guidance; Bipartisan Legislation Introduced to Require APR Disclosure on Federal Student Loans
On March 16, the U.S. Department of Education (Department) Acting Assistant Secretary Lynn B. Mahaffie notified relevant agencies that the Department is withdrawing statements of policy and guidance regarding repayment agreements and liability for collection costs on Federal Family Education Loan Program (FFELP) loans as previously stated in its July 10, 2015 Dear Colleague Letter (DCL) GEN 15-14. GEN 15-14 barred a "guaranty agency from charging collection costs to a defaulted borrower who (i) responds within 60 days to the initial notice sent by the guaranty agency after it pays a default claim and acquires the loan from the lender; (ii) enters into a repayment agreement, including a rehabilitation agreement; and (iii) honors that agreement.” The Department emphasized that the "position set forth in the DCL would have benefited from public input on the issues discussed in the DCL,” and as a result, the Department has withdrawn the DCL and will not require compliance without the opportunity for the public to provide comments.
Earlier in the month, Representatives Randy Hultgren (R-IL), Luke Messer (R-IN), and David Scott (D-GA) reintroduced the Transparency in Student Lending Act (H.R. 1283)—bipartisan legislation requiring the disclosure of the annual percentage rate on federal loans issued by the Department of Education. In 2008 the Truth in Lending Act disclosure requirements were applied to private loans, but not to federal student loans—an omission that does a “gross disservice” to borrowers according to Hultgren. “The Department of Education is the largest consumer lender in the United States, and should provide the most transparent and helpful information to borrowers. Helping borrowers understand their debt obligations is an important first step to ensuring they are able to make their payments, and also helps prevent taxpayers from being on the hook for delinquent borrowers,” noted Hultgren.
Amendment to Utah Law Clarifies “Deferred-Deposit” Lender Registration Process; Adds Criminal Background Check
On March 17, Utah Governor Gary Herbert signed an amendment to HB. 40, Utah’s Check Cashing and Deferred Deposit Lending Registration Act, which modifies registration requirements relating to the disclosure of criminal conviction information for individuals engaged in the business of cashing checks or deferred deposit lending. The amendment requires that the registration or renewal statement shall disclose whether there has been a criminal conviction involving an “an act of fraud, dishonesty, breach of trust, or money laundering” regarding any officer, director, manager, operator, principal, or employee. This information must be obtained through either a Utah Bureau of Criminal Identification report or by conducting an acceptable background check similar to the aforementioned report.
The amendment also addresses operational requirements for deferred deposit loans. Interest and fee schedules are required to be conspicuously posted, as should contact information for filing complaints and listings of states where the deferred deposit lender is authorized to offer loans. The amendment also provides clarification on rescinding loans, partial payment allowances, and restrictions on loan extensions.
On March 16, the Federal Housing Finance Agency (FHFA) published the Refinance Report for January 2017. As highlighted in the report, mortgage interest rates continued to increase in December 2016, resulting in a decrease in total refinance volume, although the agency noted that interest rates declined in January 2017. Also included is an overview of the Home Affordable Refinance Program (HARP)—a program established in 2009 to assist homeowners unable to refinance due to home value declines by providing opportunities to refinance through “the transfer of existing mortgage insurance to their newly refinanced loan, or by allowing those without mortgage insurance on their previous loan to refinance without obtaining new coverage.” As reported by the FHFA, “[b]orrowers completed 4,553 refinances through [HARP], bringing total refinances from the inception of the program to 3,452,224 . . ., and borrowers who refinanced through HARP had a lower delinquency rate compared to borrowers eligible for HARP who did not refinance through the program.” HARP, originally scheduled to expire on December 31, 2015, has had its expiration date extended three times and is now set to expire September 30, 2017.
Treasury Department Releases Reports on “Troubled Asset Relief” and “Making Home Affordable” Programs
On March 10, the Treasury Department (Treasury) released the February 2017 edition of its Monthly Report to Congress on the status of its Troubled Asset Relief Program (TARP). Among other things, the report provides updates on TARP programs such as the Capital Purchase Program and the Community Development Capital Initiative, as well as administration obligations and expenditures, insurance contracts, and transaction reports.
That same day, Treasury also published its fourth quarter 2016 “Making Home Affordable” Program Performance Report. According to the report, the housing market has made "significant progress" towards recovery since the beginning of the financial crisis. From 2009 through 2016, the number of homeowners who are 30-plus days delinquent on mortgage loans decreased from 6.1 million to 2.7 million, and the number of reported homeowners underwater also dropped significantly from 10.2 million to 3.2 million. A decline was also seen in the number of initiated foreclosures. To date, “approximately 10 million homeowners have received help through government programs and additional private sector efforts,” and “more than 2.8 million Homeowner Assistance Actions have taken place under Making Home Affordable programs.” Also provided in the report are fourth quarter 2016 servicer assessment results.
9th Circuit Panel Reverses and Remands Dismissal of Pro Se Plaintiff’s Breach of Contract Claim in Connection with Bank’s Trial Loan Modification Process
In an opinion filed on March 13, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court’s dismissal of a homeowner-plaintiff’s breach of contract claim against a major bank for damages allegedly suffered when she unsuccessfully attempted to modify her home loan over a two-year period. Oskoui v. J.P. Morgan Chase Bank, N.A., [Dkt No. 47-1] Case No. 15-55457 (9th Cir. Mar. 13, 2017) (Trott, S.). The court also remanded with instructions to permit the pro-se plaintiff to amend her complaint to allege a right to rescind in connection with her previously-dismissed TILA claim in light of the Supreme Court’s January 2015 decision in Jesinoski v. Countrywide Home Loans, Inc. And, finally, the panel affirmed the district court’s ruling that the facts alleged demonstrated a claim under California’s Unfair Competition Law (“UCL”) because, among other reasons, the factual record supported a determination that the bank knew or should have known that the homeowner was plainly ineligible for a loan modification; yet, the bank encouraged her to apply for modifications (which she did), and collected payments pursuant to trial modification plans.
In reversing and remanding the district court’s ruling dismissing the breach of contract claim, the Ninth Circuit pointed to the styling on the first-page of the complaint—“BREACH OF CONTRACT”—along with allegations about the explicit offer language contained in the bank’s trial modification documents. The Ninth Circuit relied on the Seventh Circuit’s opinion in Wigod v. Wells Fargo, which it identified as the “leading federal appellate decision on this issue of contract,” to “illuminate the viability” of plaintiff’s breach of contract claim in connection with trial plan documents. 673 F.3d 547 (7th Cir. 2012). The Ninth Circuit remanded the claim with instructions to permit the plaintiff to amend if necessary in order to move forward with her breach of contract claim.
Governor’s Proposed NY State Executive Budget Includes More Online Lending Supervision; State Assembly Budget “Rejects” Proposed Change
Article 7 of the New York State Constitution requires the Governor to submit an executive budget each year, which contains, among other things, recommendations as to proposed legislation. On February 16, New York Governor Andrew Cuomo released a proposed 2017-18 Executive Budget that includes a proposed amendment to the New York Banking Law that would provide the New York Department of Financial Services (“NYDFS” or “DFS”) expanded licensing authority over online and marketplace lenders. (See Part EE (at pages 243-44) of the Transportation, Economic Development and Environmental Conservation Bill portion of the Executive Budget).
According to a Memorandum in Support of the Governor’s Budget, the proposed amendment would (i) address “[g]aps in the State’s current regulatory authority [that] create opportunities for predatory online lending,” and (ii) “ensure that all types of online lenders are appropriately regulated,” by (a) “increase[ing] DFS’ enforcement capabilities,” and (b) “expand[ing] the definition of ‘making loans’ in New York to not only apply to online lenders who solicit loans, but also online lenders who arrange or otherwise facilitate funding of loans, and making, acquisition or facilitation of the loan to individuals in New York.” If enacted, the NYDFS’s new authority would, under the Governor’s current proposal, become effective January 1, 2018.
This proposal in the Governor’s Executive Budget has, however, been challenged by the New York State Legislature. On March 13, after several hearings on the Governor’s proposed budget, the New York State Assembly released its own 2017-18 Assembly Budget Proposal (“Assembly Budget”), which, among other things, expressly rejected the aforementioned proposed amendment to the banking law found in “Part EE.” The Senate is now expected to release its own budget proposal shortly. And, once it is released, the two house of the State Legislature will reconcile the two bills in committees and pass legislation that stakes out the House’s position on the Governor’s proposals. From there, negotiations will begin in earnest between the Legislature and the Executive, with the goal of reaching a budget agreement on or before March 31, 2017.
 See also N.Y. Banking Law § 340; N.Y. Gen. Oblig. Law § 5-501(1); N.Y. Banking Law § 14-a(1); N.Y. Gen. Oblig. Law § 5-521(3); N.Y. Ltd. Liab. Co. Law § 1104(a).
On March 7, the FDIC released its Winter 2016 Supervisory Insights, which contains articles discussing credit risk trends and balance sheet growth, emphasizes the importance of strong risk management practices, and provides a roundup of recently released regulatory and supervisory guidance. Doreen Eberley, Director of the FDIC’s Division of Risk Management Supervision, stated in the release that “[h]istorically, financial institutions that have prudently managed loan growth have been better positioned to withstand periods of stress and continue to serve the credit needs of their local communities.” Her statement goes on to “encourage bankers to identify and correct loan underwriting and administration problems before they adversely affect the bottom line.” The Supervisory Insights note that nearly 80 percent of insured institutions grew their loan portfolios during the third quarter of 2016, which is “a figure not far from the peak of nearly 83 percent of institutions that grew their portfolios in 2005.” While this edition focused primarily on lending in the following sectors—commercial real estate, agriculture, and oil and gas—it also stressed the need for managing loan concentrations through strong, forward-looking risk management practices that allow for early intervention.
In February, Rep. Mia Love (R-Utah) introduced the Stop Debt Collection Abuse Act of 2017 (H.R. 864)—legislation seeking to extend the scope of the Fair Debt Collection Practices Act (“FDCPA”) to cover the activities of private debt collectors working on behalf of federal government agencies. Specifically, the proposed bill expands the definition of debt subject to the FDCPA to cover obligations—including loans, overpayments, fines, past-due penalties, and late fees—owed to a federal agency. Under the proposed new law, a debt collector includes any person who regularly collects debts currently or originally owed or allegedly owed to a federal agency. Moreover, the bill also requires that any fees charged by private debt collectors seeking to collect debt owed to a federal agency are limited to: (i) reasonable amounts in relation to the actual costs of the collection; (ii) fees authorized by a contract between the debt collector and the federal agency; and (iii) amounts not greater than 10 percent of the amount collected by the debt collector. H.R. 864, which is currently pending before the House committee on Financial Services, is co-sponsored by Keith Ellison (D-Minn.), French Hill (R-Ark.), and Emanuel Cleaver II (D-Mo.).
In a March 15 letter to CFPB Director Richard Cordray, Rep. Emanuel Cleaver (D-Mo.) called upon the Bureau to address potential abuses by FinTech companies that may be engaged in predatory small-business lending. In so doing, he asked that the Bureau “investigate whether FinTech companies engaged in small business lending are complying with all anti-discrimination laws, including the Equal Credit Opportunity Act.” The letter also seeks responses to three questions:
- When does the CFPB anticipate finalizing regulation and guidance to fully implement Section 1071 of the ECOA (requiring financial institutions to collect and maintain loan data for women-owned, minority-owned and small business credit applicants)?
- Has the CFPB engaged in any supervisory activities over FinTech small business lenders and, if so, did the CFPB identify any ECOA-related compliance issues?
- Will the CFPB solicit complaints through its consumer complaint portal from consumers, particularly those from communities of color, who feel they have been discriminated against by a FinTech lender offering small business loans (and, if not, how can consumers formally submit a complaint)?
On March 13, the CFPB issued a consent order and stipulation in an enforcement action against the fifth of five Arizona-based title lenders under investigation for advertising periodic interest rates without including corresponding annual percentage rates. As previously covered in Infobytes in September and February, this marks the conclusion of the investigation initiated by the Bureau last year against five title lenders for alleged violations of TILA, Regulation Z, and the Consumer Financial Protection Act’s prohibition against unfair, deceptive, or abusive acts or practices. The terms of the consent order include a $40,000 civil money penalty, an agreement that the lender will refrain from further violations of TILA, and a requirement that the lender submit a comprehensive plan to ensure compliance with all applicable federal consumer financial laws and the terms of the consent order.