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  • CA Attorney General secures $67 million in debt relief for former students of defunct for-profit school

    State Issues

    On June 13, the Superior Court of the State of California ordered a California-based student loan provider to halt all debt collection efforts and forgive the balances on over 30,000 private student loans, which were used for programs at a now defunct for-profit college. According to the announcement by the California Attorney General, Xavier Becerra, the debt relief totals $67 million for the former students. The complaint, filed on the same day as the order, alleges the company engaged in unlawful debt collection practices, including sending borrowers notices threatening legal action, to collect on the student loans at issue. In addition to the debt forgiveness, the order requires the company to (i) refund all payments made on the student loans by California-residents after August 1, 2017; (ii) refund payments made prior to August 1, 2017 by borrowers who received allegedly unlawful debt collection notices; and (iii) delete negative credit reporting associated with the student loans for all of the for-profit students around the country.

    As previously covered by InfoBytes, in a class action filed by former students, the Department of Education was recently barred by a preliminary injunction from continuing collection efforts on student loans used for the same defunct for-profit college.

    State Issues State Attorney General Student Lending Debt Cancellation Debt Collection Consumer Finance Lending Courts

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  • National bank and coalition of 42 Attorneys General settle LIBOR action for $100 million

    State Issues

    On June 15, the New York Attorney General, along with 41 other state Attorneys General, announced a $100 million settlement with a national bank for allegedly fraudulent conduct involving U.S. Dollar LIBOR. According to the settlement agreement, the bank “misrepresented the integrity of the LIBOR benchmark” to government and private institutional counterparties. The bank allegedly concealed, misrepresented, or failed to disclose information to “avoid negative publicity and protect the reputation of the bank,” including, among other things, asked employees in other sections of the bank avoid offering higher rates than the bank’s USD LIBOR submissions. Additionally, contributing to inaccurate LIBOR benchmark rates, the bank allegedly was aware that other financial institutions made USD LIBOR submissions that were inconsistent with their borrowing rates. The bank is required to pay $95 million into a settlement fund, which government and non-profit entities with LIBOR-linked investments from the bank may be eligible for distribution, while the remaining $5 million will cover costs and fees associated with the investigation and settlement.

    State Issues State Attorney General Settlement LIBOR

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  • New York Court of Appeals rules claims under Martin Act governed by three-year statute of limitations

    Courts

    On June 12, the New York Court of Appeals issued a 4 to 1 ruling that claims brought under the state’s Martin Act are governed by a statute of limitations of three years, not six. Former New York Attorney General Eric Schneiderman filed a suit against a bank alleging that in 2006 and 2007, the bank misrepresented the quality of residential mortgage-backed securities it created and sold, bringing its claims under the state’s Martin Act, which grants the Attorney General of New York expanded liability for investigating and enjoining fraudulent practices in the marketing of stocks, bonds and other securities beyond what can be recognized under the common law fraud statute. The bank argued that the action was time-barred because too much time had elapsed to bring claims under the Martin Act, and an argument ensued as to whether the three-year statute of limitations that applies to actions to recover upon a liability or penalty imposed by a statute, or the six-year statute of limitations that applies to an action based upon fraud, applied. In its decision, the majority wrote that the three-year period applied because the Martin Act “expands upon, rather than codifies, the common law of fraud” and “imposes numerous obligations—or ‘liabilities’—that did not exist at common law, justifying the imposition of a three-year statute of limitations.” The court concluded that the broad definition of “fraudulent practices” encompasses wrongs that are not otherwise cognizable under the common law and “dispenses, among other things, with any requirement that the Attorney General prove scienter or justifiable reliance on the part of investors.” The court remanded the case to the New York State Supreme Court for further proceedings concerning the state’s claim against the bank for alleged violations of Executive Law Section 63(12).

    Courts Mortgages RMBS State Issues State Attorney General

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  • District Court denies joint request to stay payday rule but agrees to stay lawsuit

    Courts

    On June 12, the U.S. District Court for the Western District of Texas denied a joint request by the CFPB and two payday loan trade groups to stay the compliance date (August 19, 2019) of the Bureau’s final rule on payday loans, vehicle title loans, and certain other high-cost installment loans (Rule) until 445 days after final judgment in the pending litigation. The court declined to provide an explanation for the denial, but did grant the parties’ joint request to stay the lawsuit pending further court order. As previously covered by InfoBytes, the payday loan trade groups filed a lawsuit in April asking the court to set aside the Rule on the grounds that, among other reasons, the CFPB is unconstitutional and the Bureau’s rulemaking failed to comply with the Administrative Procedure Act. On May 31, the parties filed a joint request to stay the lawsuit and the compliance date for the Rule because of the Bureau’s plans to reconsider the Rule, which may repeal or revise certain provisions rendering the case moot or otherwise resolved.

    Courts State Issues CFPB Payday Rule CFPB Succession Federal Issues

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  • Illinois, Connecticut, and Hawaii pass security freeze legislation

    Privacy, Cyber Risk & Data Security

    On June 8, the Illinois governor approved HB 4095, which amends the Consumer Fraud and Deceptive Business Practices Act to prohibit consumer reporting agencies (CRAs) from charging consumers a fee for placing, removing, or temporarily lifting a security freeze. The act takes effect immediately.  The Act also permits a consumer to request a security freeze by phone or electronic means, in addition to a request in writing.

    This followed a similar action by the Connecticut governor, who on June 4 signed SB 472 to prohibit CRAs from charging a fee to consumers to place, remove, or temporarily lift a security freeze on a consumer's account. The legislation also, among other things, (i) prohibits CRAs from—as a condition of placing the freeze—requiring that consumers agree to limit their claims against the agency; (ii) increases the length of time that identity theft prevention and mitigation services must be provided to a consumer after a security breach from 12 to 24 months; and (iii) provides that the banking commissioner will adopt regulations that require CRAs to provide it with “dedicated points of contact” to allow the Department of Banking to assist consumers when a data breach occurs. The act takes effect October 1.

    On June 6, the Hawaii governor signed HB 2342 to enhance protection of consumer information by expanding the methods consumers may use to request security freezes, and by prohibiting credit reporting agencies (CRAs) from charging consumers a fee to place, remove, or temporarily lift a security freeze on a consumer's credit report or records. Among other things, the act now permits a consumer or a “protected consumer’s representative” to request a security freeze via first-class mail, a telephone call, or through a CRA’s designated secure website, and also preserves the CRA’s ability to lift a security freeze when the freeze was executed due to material misrepresentation by the consumer. When lifting a security freeze, CRAs are required to send written confirmation to the affected consumer within five business days. The act takes effect July 1.

    Privacy/Cyber Risk & Data Security State Issues State Legislation Security Freeze Data Breach Credit Reporting Agency

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  • NYDFS will continue to pursue litigation if OCC moves forward with fintech charter

    State Issues

    On June 6, New York Department of Financial Services (NYDFS) Superintendent, Maria T. Vullo, spoke to the Exchequer Club in Washington, DC, emphasizing, among other things, her opposition to the OCC’s proposal for a fintech charter. Vullo noted that the OCC has not actually finalized plans for the new charter and Comptroller, Joseph Otting, is expected to announce his views on the pending proposal soon. As previously covered by InfoBytes, two legal challenges, one by NYDFS and one by the Conference of State Bank Supervisors, were recently dismissed in separate district courts for lack of subject matter jurisdiction and ripeness due to the fact that the OCC has not issued a fintech charter nor has it finalized its plans to issue one. In her speech, Vullo, acknowledged these lawsuits and her desire to continue the litigation “rather than accept the OCC’s lack of authority in the non-depository space and respect the states’ regulation of and consumer protections in this area.” Vullo noted that fintech, when done right, is a “very good thing” that can assist in bringing banking services to underserved customers. But she also stated that companies that use financial technology should not be granted “an exemption from the rules that banks and other financial institutions follow to manage risk and protect consumers.”

    Vullo also touched on (i) her support for the CFPB’s final rule on payday loans, vehicle title loans, and certain other high-cost installment loans; (ii) her concerns over the dismantling of the Bureau’s Office for Students; (iii) her opposition to the Department of Education’s position that only the federal government may oversee student loan servicers (see InfoBytes coverage here); and (iv) the potential risks with the unregulated virtual currency market.

    State Issues NYDFS OCC Fintech Fintech Charter

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  • Sixteen State Attorneys General urge the CFPB to maintain the public consumer complaint database

    Federal Issues

    On June 4, the New York Attorney General, Barbara Underwood, along with fourteen other state Attorneys General submitted a comment letter in response to the CFPB’s Request for Information (RFI) on the public reporting of consumer complaints, previously covered by InfoBytes here. The Attorneys General highlight the utility of the CFPB’s consumer complaint database, stating it “has been an invaluable resource for identifying trends and patterns,” and noting its usefulness in investigations into certain companies “whose misconduct was initially brought to [their] attention through a critical mass of complaints filed with the CFPB.” The letter also comments on the database’s benefit to the public for (i) empowering consumers to educate themselves; (ii) incentivizing companies to treat consumers fairly; and (iii) potentially revealing patterns of widespread misconduct. The coalition concludes the letter by urging the CFPB to maintain the public database.

    Additionally, on the same day, the New Jersey Attorney General, Gurbir Grewal, responded to the same RFI with similar sentiments but also emphasized that eliminating or reducing the public availability of the database “would conflict with the open-government principles of the Freedom of Information Act” (FOIA) because FOIA requires government agencies to proactively disclose frequently requested records. According to Grewal, the Bureau receives a substantial number of requests for consumer complaint records and this number will likely increase without the public database.

    Federal Issues State Issues State Attorney General Consumer Complaints CFPB RFI

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  • Maryland alters certain mortgage broker finder’s fee restrictions

    State Issues

    On May 16, the Maryland legislature enacted, without the governor’s signature, HB 1511, which will alter Maryland’s mortgage broker “finder’s fee” law to place a limit on the amount a broker may charge on the same property more than once within a 24-month period. Effective October 1, the law will only allow a mortgage broker to charge a finder’s fee with respect to the same property within a 24-month period if the fee is equal to or less than eight percent of the initial loan amount, combined with (i) the finder’s fee charged on the initial loan; and (ii) any other finder’s fee collected during the 24-month period.

    State Issues State Legislation Mortgage Broker Mortgages Finder's Fee

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  • Fannie Mae issues industry alert concerning borrower employment scheme in Southern California

    Federal Issues

    On May 24, Fannie Mae’s Mortgage Fraud Program issued an industry alert to mortgage lenders in Los Angeles County identifying 34 entities and businesses listed as employers on loan applications, the existence of which could not be confirmed by Fannie Mae. In the event one of the identified companies is provided as a borrower’s place of employment, Fannie Mae warns lenders to exercise caution when reviewing the entire loan file and “take appropriate steps to prevent the institution from being the victim of fraud.” The alert provides additional fraud detection and prevention steps, including encouraging awareness of third-party originators/brokers, educating staff, and reporting suspicious activity.

    Federal Issues Fannie Mae Mortgages Fraud State Issues

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  • New York governor signs bill authorizing NYDFS to study online lending in the state

    Lending

    On June 1, the New York governor signed AB 8938, which authorizes and directs the New York Department of Financial Services (NYDFS) to study online lending institutions that conduct business in the state, and requires NYDFS to submit a report containing analysis, assessments, and recommendations pertaining to online lending institutions by July 1. As previously covered in InfoBytes, NYDFS announced plans on April 24 to issue a report, which would include an analysis of the differences between online lending products and services and those of traditional lending institutions, the risks/benefits of the products offered, and the availability of various credit products in the absence of online lending. With the enactment of AB 8938, NYDFS is also tasked with, among other things, surveying existing state and federal laws and regulations applicable to the online lending industry. The act is effective immediately and shall expire July 1—the report’s due date.

    Lending Online Lending State Issues NYDFS

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