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  • Washington governor enacts bill to provide student loan debt relief

    Lending

    On March 22, the Washington governor signed HB 1169, which establishes the student opportunity, assistance, and relief act to address student loan debt. Among other things, HB 1169 (i) repeals certain statutes allowing the suspension of a professional license or certificate due to student loan default; (ii) changes the judgment interest rate for unpaid private student loan debt to two percentage points above the prime rate, unless the judgment interest rate is specified in the contract; (iii) defines “private student loan,” and outlines exclusions, such as “an extension of credit made under an open-end consumer credit plan, a reverse mortgage transaction, a residential mortgage transaction, or any other loan that is secured by real property or a dwelling”; and (iv) outlines provisions and exemptions for bank account and wage garnishment. The act takes effect June 7.

    As previously covered in InfoBytes, earlier in March the Washington governor established the “Washington student education loan bill of rights” to outline licensing requirements and responsibilities for student loan servicers.

    Lending State Issues State Legislation Student Lending Debt Relief

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  • West Virginia passes bill amending licensing requirements for mortgage loan originators

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    On March 22, the West Virginia governor signed HB 4285, which amends provisions under the West Virginia Safe Mortgage Licensing Act (Act) related to licensing requirements for mortgage loan originators, including those related to continuing education. HB 4285, among other things, (i) updates requirements for applicants registering for mortgage loan originator licenses; (ii) requires nonresident mortgage loan originators licensed under the Act to “acknowledge that they are subject to the jurisdiction of the courts of West Virginia”; (iii) outlines provisional license exceptions for loan originators; and (iv) specifies prelicensing and relicensing education requirements. The amendments take effect May 31.

    Lending State Issues State Legislation Mortgage Origination Mortgages Licensing

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  • Florida enacts legislation prohibiting the misrepresentation of a residential mortgage loan as a business purpose loan

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    On March 21, the Florida governor signed HB 935, which prohibits the misrepresentation of a residential mortgage loan as a business purpose loan. HB 935 defines “business purpose loan” and requires that “a person must refer to the official interpretation” of the CFPB under 12 C.F. R. Section 1026.3(a) to determine if a loan is for a “business purpose.”  It also provides penalties for knowingly or willfully misrepresenting a residential mortgage loan as a business purpose loan. Additionally, HB 935 defines the phrase “hold himself or herself out to the public as being in the mortgage lending business” to include representing to the public through advertisements or solicitations that the individual or business is a licensed mortgage lender. The law is effective July 1.

    Lending State Issues State Legislation Mortgages

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  • Tennessee amends interest rate legislation

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    On March 23, the Governor of Tennessee signed HB 1944, which amends lending provisions of the Tennessee Code Annotated to change the application of interest rates to the amount financed instead of the total amount of the loan with regard to certain loans made by Tennessee industrial loan and thrift companies. The following interest rate requirements under present Tennessee law now apply to the amount financed: (i) under $100, no interest shall be charged on the principal or on the unpaid balance due after maturity in excess of a maximum effective rate of 18 percent per annum; (ii) between $100 and $5,000, no interest shall be charged on the principal or on the unpaid balance due after maturity in excess of a maximum effective rate of 30 percent per annum; (iii) greater than $5,000, no interest shall be charged on the principal or on the unpaid balance due after maturity in excess of a maximum effective rate of 24 percent per annum; and (iv) for open-end credit plans, a maximum effective rate of 24 percent per annum applies to the principal or on the unpaid balance due after maturity. HB 1944 is effective immediately and applies to loans made on or after March 23.

    Lending State Issues Interest Rate Consumer Finance Usury State Legislation

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  • Florida allows 60 - 90 day payday loan

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    On March 19, the Florida governor signed legislation, SB 920, which authorizes the lending of an additional type of payday loan (referred to as, “deferred presentment installment transaction”). The legislation now allows loans under $1,000 that have a repayment term between 60 and 90 days with maximum fees of 8 percent of the outstanding transaction balance charged on a biweekly basis. Fees must be calculated using a simple interest calculation. Previously, Florida only authorized small-dollar loans under $500 that had repayment terms between seven and 30 days (referred to as, “deferred presentment transaction[s]”).

    The expansion of the allowable small-dollar loans, appears to be in response to the CFPB’s final rule addressing payday loans, vehicle titles loans, and certain other extensions of credit (previously covered in a Buckley Sandler Special Alert), which covers most transactions with repayment terms of less than 45 days. While the CFPB’s rule became effective on January 16, compliance for most of the rule’s provisions is not required until August 2019. Moreover, in January, the CFPB announced its plan to reconsider the final rule (covered by InfoBytes here).

    Lending State Issues State Legislation Payday Lending

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  • Washington state enacts student education loan bill of rights, outlines servicer requirements

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    On March 15, the Washington governor signed Senate Bill 6029, which establishes the “Washington student education loan bill of rights” and outlines licensing requirements and responsibilities for student loan servicers. The act, among other things, requires that the council designate a “student loan advocate” whose responsibilities include providing timely assistance to borrowers, reviewing borrower complaints, referring servicing-related complaints to the state’s Department of Financial Institutions (DFI) or the Attorney General’s office, compiling and disseminating data regarding borrower complaints, and establishing a student education loan borrower education course by October 1, 2020. The act also requires that student loan servicers be licensed through the state (certain entities that are exempt from the licensing requirement must still comply with the act’s other requirements). Under the act, student loan servicers—in addition to complying with applicable federal program requirements—must also (i) provide information to borrowers concerning repayment options, account history, and assessed fees; (ii) notify borrowers when acquiring or transferring servicing rights; and (iii) provide disclosures concerning the possible effects of refinancing student loans. The act further provides that third-parties offering student education loan modification services may not charge or receive money “prior to full and complete performance of the [agreed upon] services,” may not charge fees that are in excess of what is customary or reasonable, and must immediately inform a borrower in writing if the owner or servicer of a loan requires additional documentation or if “modification, refinancing, consolidation, or change in repayment plans . . . is not possible.”

    Furthermore, the act exempts from the outlined requirements “any person doing business under, and as permitted by, any law of this state or of the United States relating to banks, savings banks, trust companies, savings and loan or building and loan associations, or credit unions.” 

    Lending Student Lending Licensing State Issues Servicer State Attorney General

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  • Superior Court denies student loan servicer’s motion to dismiss Massachusetts Attorney General’s lawsuit

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    On February 28, a Suffolk County Superior Court denied a Pennsylvania-based student loan servicing agency’s (defendant) motion to dismiss a lawsuit filed by the Massachusetts Attorney General, which alleged the defendant overcharged borrowers and improperly processed claims for public service loan forgiveness. (See previous InfoBytes coverage here.) According to the court, the loan servicer’s argument that it is “an arm of the Commonwealth of Pennsylvania” and therefore entitled to sovereign immunity from lawsuits was not convincing; it noted that not only had the defendant failed to qualify as a state entity but it demonstrated “substantial financial and operational independence” from the state.

    Furthermore, the court also rejected the defendant’s arguments that the action was not permitted because the Department of Education is an indispensable party to the suit and that the Massachusetts Attorney General’s claims “are preempted ‘to the extent’ that they ‘conflict with the requirements of federal law.’” The judge opined that the Department of Education is not an indispensable party even though some of the injunctive relief sought may conflict with the Department of Education’s rights under its loan servicing contract or regulatory requirements. 

    Lending State Attorney General Department of Education Student Lending UDAP

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  • New York Fed says fintech companies improved lending efficiency in mortgage market

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    The Federal Reserve Bank of New York (New York Fed) released a February 2018 Staff Report titled, “The Role of Technology in Mortgage Lending,” which concludes that technological innovation by fintech mortgage lenders has improved the efficiency of lending in the U.S. mortgage market. In the report, the New York Fed defines a fintech mortgage lending model as one that features “an end-to-end online mortgage application platform and centralized mortgage underwriting and processing augmented by automation.” The report uses quantitative analysis to study the effects of technological innovation in the U.S. mortgage market by identifying several areas of friction in traditional lending and examining whether fintech lending improves them. Among other things, the report finds that, without increasing risk, fintech lenders (i) process mortgages more quickly; (ii) respond more elastically to fluctuations in demand; and (iii) increase borrowers’ propensity to refinance. However, the report notes that there is little evidence that fintech lending is more effective than traditional lending at providing financially constrained borrowers access to credit.

    Lending Federal Reserve Bank of New York Mortgages Fintech

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  • VA clarifies policy regarding the use of lender payment or credit of certain borrower costs

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    On February 23, the Department of Veterans Affairs (VA) issued Circular 26-18-4 in response to reports that lenders may be funding temporary “buydown” or escrow accounts in order to subsidize a borrower’s payment through an above market interest rate, which the VA views as a “cash-advance on principal.” The circular reminds lenders that cash-advances on principal are prohibited, and lenders may not pay temporary buydown fees and charges. The circular notes that sellers are not prohibited from paying buydown fees and charges for the borrower and that lenders are allowed to charge a maximum of one percent of the loan amount as a flat charge in lieu of all other charges related to the costs of origination not expressly allowed by 38 C.F.R. 36.4313. The circular is effective until January 1, 2020.

    Previously, on February 1, the VA updated multiple chapters of the VA Servicer Handbook M26-4, which, among other things, added the definition of delinquency, corrected the bankruptcy reporting timeframe, and added information on the new VA Affordable Modification.

    Lending Mortgages Department of Veterans Affairs

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  • IRS issues reporting guidance for MIP

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    On February 22, the IRS issued a notice providing guidance to mortgage lenders on the reporting of mortgage insurance premiums (MIP) treated as qualified residence interest. The IRS emphasizes that MIP paid or accrued through December 31, 2017 will be deductible for eligible taxpayers and informs lenders to report MIP received in 2017 on Form 1098. If a lender has already filed Form 1098 and did not include the reportable MIP, the IRS requires lenders to file corrected forms by the filing due date and to furnish corrected statements to borrowers by March 15.

    Lending Mortgages IRS Mortgage Insurance Premiums

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