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DFPI signs MOUs with EWA companies
On January 27, California’s Department of Financial Protection and Innovation (DFPI) announced that it entered into memorandums of understanding (MOUs) with five earned wage access (EWA) companies. According to DFPI, the MOUs represent the first agreements of their kind between fintechs and a state regulator, and are intended to “pave a path so [EWA] companies can continue operating in California, in advance of possible registration under the California Consumer Financial Protection Law [CCFPL], which took effect this year and defines the companies as newly covered financial services.” (Buckley Special Alert coverage on the CCFPL available here.) The five EWA companies represent two advance pay models: “an employer-based model which offers early access to wages in partnership with an employer as a benefit and a direct-to-consumer model which does not require employer participation.”
Under the terms of the MOUs, the companies have agreed to deliver quarterly reports providing DFPI with a better understanding of their products and services, as well as the risks and benefits to consumers in the state. Reports will include information concerning “changes to consumer contracts, fees to consumers, consumer complaints, the average number of advances per month, duration before consumer payback, and the number of consumers making no repayment, partial repayments, or requesting cancellations or deferrals, among other stipulations.” The companies have also agreed to regular periodic DFPI examinations and are required to follow industry best practices, including by, among other things, (i) not offering any financial products that are “contingent on any tips the consumer chooses to make or does not make”; (ii) complying with TILA by limiting annual percentage rates on advanced funds to 36 percent; (iii) disclosing to consumers any potential fees that may be assessed prior to advancing the funds; (iv) limiting the amount of funds advanced to a consumer to no more than 50 percent of the consumer’s next paycheck; and (v) allowing consumers to revoke EFT authorization up to three days before a scheduled repayment date.
As previously covered by InfoBytes, last November the CFPB issued an advisory opinion on EWA products, which clarified that “a Covered EWA Program does not involve the offering or extension of ‘credit’” under Regulation Z, which implements TILA. The Bureau noted that the “totality of circumstances of a Covered EWA Program supports that these programs differ in kind from products the Bureau would generally consider to be credit.”
CFPB obtains $15 million judgment against student financial aid operation
On January 21, the U.S. District Court for the Southern District of California issued an order granting in part and denying in part the CFPB’s motion for partial summary judgment and granting the agency’s motion for default judgment in a 2015 case against a now defunct California-based student financial aid operation and its owner (defendants). As previously covered by InfoBytes, the defendants allegedly engaged in deceptive practices when they, among other things, represented that by paying a fee and sending in an application, consumers were applying for financial aid or the defendants would apply for aid on behalf the students. However, according to the Bureau, the consumers did not receive the promised services in exchange for their payment. The case was stayed in 2016 while the owner defendant faced a pending criminal investigation, until the court lifted the stay in 2019 after finding the possibility of the civil proceedings affecting the owner defendant’s ability to defend himself in the criminal proceeding “speculative and unripe.”
In issuing the order, the court determined, among other things, that the Bureau had established the owner defendant’s liability for deceptive practices under the CFPA, rejecting the owner defendant’s argument that booklets sent to consumers did not qualify as a “consumer financial product or service” within the scope of the Bureau’s enforcement authority. The court further ruled that the owner defendant had made material representations to consumers that were “likely to mislead” them into thinking, among other things, that they would receive individually tailored products, when in reality their individual information never mattered and no specific financial aid advice was ever provided. However, the court denied the CFPB’s motion for summary judgment with respect to solicitation packets sent by the defendants in 2016, ruling that an included FAQ creates “a genuine issue of disputed fact as to whether the 2016 solicitation packets misrepresented that [the company’s] program permitted consumers to apply for financial aid or to apply through [the company].”
The order requires the defendants to pay a $10 million civil money penalty and more than $4.7 million in restitution. The court will also issue an injunction to prevent the defendants “from committing any future fraud” once the Bureau submits a proposed order. Additionally, default judgment was entered against the defendants on the merits of the Bureau’s claims, which included allegations that the defendants failed to provide privacy notices to consumers as required by Regulation P.
Court revives RESPA kickback suit
On January 26, the U.S. District Court for the District of Maryland granted plaintiffs’ motion for reconsideration and relief stemming from a 2020 dismissal order, which previously dismissed RESPA claims in a kickback suit. The case originally alleged a mortgage lender entered into an arrangement with a settlement service company to trade referrals for kickbacks, which resulted in the plaintiffs being overcharged for their settlement services. In 2020, the court granted the defendant’s motion to dismiss, finding that the alleged payments fell under RESPA’s safe harbor provision permitting compensation to be paid for services performed. In re-opening the case, the court acknowledged that the dismissal of the case was premised on two “clear” errors with respect to RESPA’s safe harbor provision. First, the court noted that it previously misconstrued that the settlement service company was the recipient of the alleged kickbacks, when in actuality, the lender received the kickbacks. Second, the court determined that the plaintiffs were correct in asserting that the court failed to consider allegations in their amended complaint that the lender did not render any services to the settlement service company to warrant the payments it received. The court concluded it had made an error by “concluding that the alleged kickback payments were protected under RESPA’s safe harbor provision.” The court also revived the plaintiffs’ Racketeer Influenced and Corrupt Organizations Act claims after determining they were plausibly pled.
OFAC amends communist Chinese military companies general license and related FAQs
On January 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued General License (GL) 1A, “Authorizing Transactions Involving Securities of Certain Communist Chinese Military Companies,” which supersedes and replaces GL 1 (covered by InfoBytes here). GL 1A permits transactions and activities otherwise prohibited by Executive Order (E.O.) 13959 involving “publicly traded securities, or any securities that are derivative of, or are designed to provide investment exposure to such securities, of any entity whose name closely matches, but does not exactly match, the name of a Communist Chinese Military Companies List as defined by section 4(a) of E.O. 13959, as amended.” OFAC also published related frequently asked questions 878 and 879, the latter of which clarifies that GL 1A does not authorize transactions with subsidiaries of companies on the Communist Chinese Military Companies List.
DFPI: Certain bitcoin ATMs/kiosks not subject to MTA licensure
Recently, California’s Department of Financial Protection and Innovation (DFPI) released a new opinion letter covering aspects of the Money Transmission Act (MTA) related to bitcoin automated teller machines (ATMs) and kiosks. The letter explains that the sale and purchase of bitcoin through ATMs/kiosks in third-party retail locations described by the applicant company are not subject to licensure under the MTA because the sale and purchase of bitcoin from the company’s own inventory through a kiosk does not meet California’s definition of “money transmission.” In each instance, the transaction would only be between the consumer using the ATM/kiosk and the company, the bitcoin would be sent directly to the customer’s virtual currency wallet, and any bitcoin sold would be provided exclusively from the company’s own inventory. DFPI reminded the company that its determination is limited to the activities specified in the letter and does not extend to any other activities that the company may engage in. Moreover, the letter does not relieve the company from any FinCEN, federal, or state regulatory obligations.
SBA issues Covid-19 guidance for various loans
On January 28, the Small Business Association (SBA) issued an information notice providing an update on the tax treatment of payments related to certain 7(a) loans, 504 loans, and microloans under Section 1112 of the CARES Act. As previously covered by InfoBytes, in December 2020, the SBA released a guidance document covering the issuances of 1099-MISC forms for 7(a) loans, 504 loans, and microloans. However, due to Section 278(c) of the Covid-related Tax Relief Act of 2020, the SBA now states that lenders “are no longer required to file Form 1099-MISC, Miscellaneous Income, with the IRS or furnish this form to the small businesses on whose behalf the SBA made Section 1112 payments.” Moreover, the SBA issued procedural notices covering the use of electronic signatures for 7(a) loans and 504 loans and microloans through April 30. Additionally, the SBA issued an extension on the temporary procedures for microloan closings through April 30.
Maryland regulator extends foreclosure restrictions
On January 28, the Maryland commissioner of financial regulation issued guidance that extends the “re-start date” for the initiation of residential foreclosures to March 1, 2021. The guidance is issued pursuant to the Maryland governor’s executive order 20-12-17-02, which amended and restated previous executive orders covered here, and here.
Indiana governor renews public health disaster emergency and extends some executive orders issued
On January 28, the Indiana governor issued Executive Order 21-03, which renews the public health disaster emergency, originally set forth in Executive Order 20-02 (previously discussed here), for an additional 30-day period beyond January 30, 2021. As a result, all executive orders issued since March 6, 2020, that provide that they are supplements to Executive Order 20-02 are also renewed for the same 30-day period, except to the extent that they have been rescinded, superseded, or specify that they end or expire at another specific date.
North Carolina extends eviction protections through March 31
On January 27, the governor of North Carolina issued Executive Order No. 191 extending the limitations on residential evictions, consistent with the framework set forth in the federal CDC Order, through March 31.
OCC releases recent enforcement actions
On January 21, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included is a civil money penalty order against a Texas-based bank, which requires the payment of $382,500 for an alleged pattern or practice of violations of the Flood Disaster Protection Act and its regulations.