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Financial Services Law Insights and Observations

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  • Rhode Island Department of Business Regulation adopts mortgage foreclosure disclosure amendments

    State Issues

    On October 1, the Rhode Island Department of Business Regulation adopted amendments to its regulations relating to mortgage foreclosure disclosure notices and mediation conference obligations. The amendments—which are effective as of September 28—require entities and individuals regulated by the Rhode Island Division of Banking and non-exempt mortgagees to comply with the outlined foreclosure provisions. The provisions, among other items, (i) require use of the notice of pending foreclosure form; (ii) require provision of notice of mediation conferences to all mortgagors prior to initiating a foreclosure, in the specified manner; and (iii) outline qualifications for the mediation coordinator responsible for issuing certificates of compliance.

    State Issues Mortgages Disclosures Foreclosure

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  • Freddie Mac releases various selling updates in Guide Bulletin 2018-19

    Federal Issues

    On October 31, Freddie Mac released Guide Bulletin 2018-19, which announces selling updates, including updates to the Settlement/Closing Disclosure Statement that sellers are required to use for mortgages with note dates on or after September 25, 2017. Effective immediately, Freddie Mac and Fannie Mae have jointly agreed that sellers “must create or obtain . . . the [c]losing [d]isclosure form for each [m]ortgage, regardless of whether another form might also be required by a [s]tate or local law.” Bulletin 2018-19 additionally states that, with the exception of certain servicing transactions, the Settlement/Closing Disclosure Statement means the closing disclosure required under TILA for mortgages subject to TRID rules, “whether or not the TRID rules apply to the transaction.”

    Among other things, Bulletin 2018-19 also (i) updates certain rental income and documentation requirements; (ii) removes the special loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit TLTV ratio requirements for a “no cash-out” refinance of a mortgage owned or securitized by Freddie Mac with settlement dates on or after February 1, 2019; and (iii) removes the mandatory expiration date on Guide Form 960 (the Concurrent Transfer of Servicing Agreement), eliminating the need for sellers to submit a new guide form each year.

    Federal Issues Freddie Mac Fannie Mae Mortgages Selling Guide TRID TILA Disclosures

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  • FDIC proposes to eliminate annual disclosure requirement for state nonmember banks

    Agency Rule-Making & Guidance

    On October 25, the FDIC published a proposed rule in the Federal Register to rescind the annual disclosure requirement applicable to all state nonmember banks and insured state-licensed branches of foreign banks (collectively, “banks”). Specifically, the FDIC is proposing to eliminate 12 CFR Part 350, which, in general, required banks to prepare annual disclosure statements consisting of (i) required financial data comparable to specified schedules in the Call Reports filed for the previous two years; (ii) information that the FDIC may request, such as enforcement actions; and (iii) other information the bank chooses to disclose. According to the proposal, the FDIC has determined that the regulation is “outdated and no longer necessary,” because, with widespread access to the internet, information about the financial condition and performance of individual banks is now “reliably and directly offered to the public through the FDIC’s and the Federal Financial Institutions Examination Council’s (FFIEC) websites” in the form of Call Reports and Uniform Bank Performance Reports. This eliminates the need for the annual disclosure statement requirements. Similar disclosure requirements have already been rescinded in recent years by the Federal Reserve Board and OCC. Comments on the proposed rule must be received by November 26.

    Agency Rule-Making & Guidance FDIC Federal Register Disclosures Call Report FFIEC

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  • CFPB launches innovation webpage

    Fintech

    On October 16, the CFPB announced the launch of its new webpage for innovation, which aims to engage with entrepreneurs and the innovation community to promote competition, innovation, and consumer access within financial services. The webpage is a result of the Bureau’s new Office of Innovation (previously known as Project Catalyst) and includes information regarding the Global Financial Innovation Network and the Bureau’s proposed revisions to the Trial Disclosure Program Policy (previously covered by InfoBytes here and here). The webpage also encourages groups to “pitch a pilot” to work with the Bureau on consumer-friendly innovation ideas.

    Fintech CFPB Regulatory Sandbox Disclosures

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  • New California law requires non-bank lenders and other finance companies to provide commercial financing disclosures

    State Issues

    On September 30, the California governor signed SB 1235, which requires non-bank lenders and other finance companies to provide written consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances. Most notably, the act requires financing entities subject to the law to disclose in each commercial financing transaction — defined as 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”— the “total cost of the financing expressed as an annualized rate” in a form to be prescribed by the California Department of Business Oversight (DBO).

    Although the act is effective immediately, the act requires the DBO to first develop regulations governing the new disclosure requirements, and lenders are not required to comply with the provisions of the act until the final regulations are adopted and become effective. Once final regulations are in place, recipients of commercial financing offers will have to sign the disclosures, which are to be provided at the time of the offer. The disclosures must include (i) the total amount of funds provided; (ii) the total dollar cost of the financing; (iii) the term or estimated term; (iv) the method, frequency, and amount of payments; (v) a description of prepayment policies; and (vi) the total cost of the financing expressed as an annualized rate. Finance companies subject to the law are required to provide the annualized financing rate until January 1, 2024, at which time that portion of the disclosure requirement sunsets. The act also allows for finance companies who offer factoring or asset-based lending to provide alternative disclosures using an example transaction that could occur under the agreement.

    Importantly, the act does not apply to (i) depository institutions; (ii) lenders regulated under the federal Farm Credit Act; (iii) commercial financing transactions secured by real property; (iv) a commercial financing transaction in which the recipient is a vehicle dealer, vehicle rental company, or affiliated company, and meets other specified requirements; and (v) a lender who makes no more than one applicable transaction in California in a 12-month period or a lender who makes five or fewer applicable transactions that are incidental to the lender’s business in a 12-month period. The act also does not cover (i) true leases, but will apply to bargain-purchase leases; (ii) commercial loans under $5,000, which are considered consumer loans in California regardless of any business-purpose and subject to separate disclosure requirements; and (iii) commercial financing offers greater than $500,000.

    State Issues Small Business Lending Fintech Disclosures APR Commercial Finance

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  • CFPB publishes final rule relating to disclosure of confidential records and information

    Agency Rule-Making & Guidance

    On September 12, the CFPB published a final rule to modify its procedures for the disclosure of records and information. As previously covered in InfoBytes, the notice of proposed rulemaking—published August 2016—sought to amend procedures used to obtain information from the Bureau under the Freedom of Information Act (FOIA), the Privacy Act of 1974, and in legal proceedings. In response to comments on its proposal, the final rule revises the following subparts under section 1070 of title 12 of the Code of Federal Regulations: (i) Subpart A: “procedures related to the certification of authenticity of Bureau records and the service of summonses or complaints on the Bureau”; (ii) Subpart B: practices to provide requesters additional flexibility under FOIA; and (iii) Subpart C: “procedures for requests for information from the Bureau in connection with legal proceedings.” Subpart E, which implements the Privacy Act of 1974, received no comments and has been finalized without modification. The Bureau noted that the final rule does not revise Subpart D, which relates to the “confidential treatment of information obtained from persons in connection with the exercise of its authorities under federal consumer financial law.” The final rule takes effect October 12.

    Agency Rule-Making & Guidance CFPB FOIA Disclosures

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  • CFPB issues updated FCRA model disclosures to implement Economic Growth, Regulatory Relief, and Consumer Protection Act amendments

    Federal Issues

    On September 12, the CFPB issued an interim final rule to comply with the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”) (previously Senate bill S. 2155). Section 301(a)(1) of the Act amends the FCRA to add section 605A(i), which requires consumer reporting agencies to provide national security freezes free of charge to consumers. Additionally, the new section requires that whenever a consumer is provided a “summary of rights” under section 609, the summary must include a notice regarding the right to obtain a free security freeze. The Act also amends FCRA section 605A(a)(1)(A) to extend from 90 days to one year the minimum time that a credit reporting agency must include an initial fraud alert on a consumer’s file.

    The interim final rule, which is effective on September 21, amends the model forms in Regulation V to comply with the Act. The interim file rule also permits various compliance alternatives to mitigate the impact of the changes to these forms, including allowing the use of the 2012 model forms so long as a separate page provided in the same transmittal contains the new information required.

    Comments on the interim final rule will be due 60 days after publication in the Federal Register. Links to the English and Spanish versions of the revised Summary of Consumer Rights and revised Summary Consumer Identity Theft Rights, covered by Section 609 of the FCRA, are available here.

    Federal Issues CFPB FCRA Disclosures S. 2155 EGRRCPA Security Freeze

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  • CFPB proposes revisions to trial disclosure policy, creating “Disclosure Sandbox”

    Federal Issues

    On September 10, the CFPB published a proposal to revise its trial disclosure policy in order to “more effectively encourage companies to conduct trial disclosure programs.” The current trial disclosure policy, authorized by Section 1032(e) of the Dodd-Frank Act, was finalized in 2013 and allows for approved company disclosures to be deemed in compliance with, or exempted from, applicable federal disclosure requirements during the testing period. For the past five years, under the current policy, the Bureau has not approved a single company program for participation. The proposed revisions intend to create a “Disclosure Sandbox” and increase company participation in the program by, among other things, (i) streamlining the application process and providing formal determinations within 60 days of submission; (ii) increasing guidance during the testing period; (iii) providing procedures for requesting extensions of successful programs, as the Bureau expects most testing periods will start at two years; (iv) coordinating with other regulators of similar programs to allow companies to conduct a Bureau Disclosure Sandbox program without going through the Bureau’s application process; and (v) clarifying that trade groups may apply to the program on behalf of its members. Comments on the proposal must be received by October 10.

    Federal Issues CFPB Disclosures Dodd-Frank Regulatory Sandbox

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  • CFPB announces settlement with Alabama-based operation for allegedly failing to properly disclose finance charges

    Consumer Finance

    On July 19, the CFPB announced a settlement with a small-dollar lending operation that allegedly failed to properly disclose finance charges and annual percentage rates associated with auto title loans in violation of the Truth in Lending Act (TILA) and the prohibition on deceptive practices in the Consumer Financial Protection Act (CFPA). According to the consent order, the Alabama-based operation, which owned and operated approximately 100 retail lending outlets in Alabama, Mississippi, and South Carolina under several names, materially misrepresented the finance charges consumers would incur for Mississippi auto title loans by disclosing a finance charge based on a 30-day term while having consumers sign a 10-month payment schedule. The Bureau asserts that “[c]onsumers acting reasonably likely would not understand that the finance charge disclosed in the loan agreement does not actually correspond to their loan payment term.” Furthermore, the Bureau contends that the operation also failed to disclose the annual percentage rate on in-store advertisements as required under TILA. The order requires the operation to pay redress in the amount of $1,522,298, which represents the total undisclosed finance charges made directly or indirectly by affected consumers on their loans. However, based on defendants’ inability to pay this amount, full payment is suspended subject to the operation’s paying $500,000 to affected consumers. In addition to the penalties, the operation is prohibited from continuing the illegal behavior and the operation’s board must ensure full compliance with the consent order.

    Consumer Finance CFPB Settlement CFPA TILA Auto Finance Disclosures

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  • District court grants partial summary judgment, rules bank did not violate federal and state fair credit reporting laws

    Courts

    On April 25, the U.S. District Court for the Northern District of California granted a bank’s partial motion for summary judgment, holding that a Fair Credit Reporting Act (FCRA) disclosure and authorization form (disclosure form) completed by the plaintiff as part of the bank’s background check hiring process did not violate federal and state fair credit reporting laws. The plaintiff—who brought the proposed class action suit following the bank’s decision not to hire plaintiff following an offer of employment that was contingent upon a satisfactory background check—asserted claims under the FCRA, the California Investigative Consumer Reporting Agencies Act (ICRA), and the California Consumer Credit Reporting Agencies Act (CCRA), including that (i) the disclosure form was not a standalone document; (ii) the disclosure did not accurately identify the investigative consumer reporting agency; and (iii) the bank failed to comply with CCRA disclosure requirements.

    Addressing whether the disclosure form, which “appeared as a separate and distinct web page separated from the rest of the documents,” violated the FCRA, the court ruled that because it “was a stand-alone document that contained no extraneous information or liability waiver” it was in compliance. The court also determined that the bank did not violate the ICRA because it was only required to disclose the agency it engaged to provide an investigative consumer report, not the various sources the agency itself may have used when conducting its investigation. Finally, the court ruled that the plaintiff’s argument that the disclosure form failed to comply with the CCRA lacked merit because—although the bank could not apply an exemption under state law to the section allegedly violated—the bank’s disclosure form complied with the CCRA’s disclosure requirements, and furthermore, the bank was not required to disclose the reasons for requesting the report nor the “various repositories” of information the disclosed source used when compiling the report.

    Courts State Issues FCRA Credit Reporting Agency Disclosures

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