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  • Conference of State Bank Supervisors announces single, national exam for mortgage loan originator licensing

    Lending

    On August 8, the Conference of State Bank Supervisors announced that all states and U.S. territories now use a single, common exam to assess mortgage loan originators (MLOs) in order to simplify the licensing process and streamline the mortgage industry. MLSs who pass the National SAFE MLO Test with Uniform State Content (National Test) will no longer be required to take additional state-specific tests in order to be licensed within any state or U.S. territory. The National Test is part of CSBS’ Vision 2020, which is geared towards streamlining the state regulatory system to support business innovation and harmonize licensing and supervisory practices, while still protecting the rights of consumers. 

    Find continuing InfoBytes coverage on CSBS’ Vision 2020 here.

    Lending CSBS Mortgage Origination Licensing Vision 2020

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  • FTC announces charges against auto dealerships for falsifying consumer information on auto financing documents

    Lending

    On August 1, the FTC announced charges against a group of four auto dealers (defendants) with locations in Arizona and New Mexico near the Navajo Nation’s border alleging, among other things, that the defendants advertised misleading discounts and incentives through their vehicle advertisements, and falsely inflated consumers’ income and down payment information on certain financing applications. The charges brought against the defendants allege violations of the FTC Act, the Truth in Lending Act, and the Consumer Leasing Act. According to the complaint, by allegedly falsifying the customers’ income and down payments, the defendants “inaccurately made consumers appear more creditworthy” on the false financing applications. Moreover, the FTC claims the defendants often prevented consumers from reviewing the falsified information provide in the financing applications prior to signing. As a result, credit was extended to consumers—many of whom are members of the Navajo Nation—who then subsequently “defaulted at a higher rate than properly qualified buyers.” Furthermore, the complaint asserts that the defendants’ deceptive advertising practices concealed the true nature and terms of the financing or leasing offers, and were in violation of federal law for failing to disclose the required terms. The complaint seeks, among other remedies, a permanent injunction to prevent future violations, restitution, and disgorgement.

    Lending Consumer Finance FTC Auto Finance FTC Act TILA Consumer Leasing Act

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  • Department of Education issues notice of proposed rulemaking to provide borrower defense provisions

    Lending

    On July 25, the U.S. Department of Education (Department) issued a press release announcing a notice of proposed rulemaking that would apply to students who qualify for loan discharges in circumstances where a borrower was significantly misled or defrauded by the higher education institution they attended. Provisions under the proposed Institutional Accountability regulations include:

    • instituting a “borrower defense to repayment adjudication process that is clear, consistent and fair to borrowers who were harmed by institutional misconduct”;
    • replacing the existing state standard for adjudicating claims with a federal standard to provide a more expeditious review of student claims;
    • encouraging students to seek remedies directly from institutions when misrepresentation has occurred;
    • expanding the “closed school loan discharge” eligibility time period to 180 days from 120 days for students who have left an institution prior to its closure;
    • ensuring that any mandatory arbitration requirements or class action lawsuits restrictions are explained in plain language to enable students to make informed enrollment decisions; and
    • preventing guaranty agencies from charging borrowers a fee on defaulted loans if the loan goes into repayment within 60 days.

    The Department also seeks public comment on whether borrower defense to repayment claims should be limited only to students in default instead of also allowing students to apply for forgiveness who remain in good financial standing. Additionally, the Department seeks comments on whether students should be held to a higher standard through the showing of “clear and convincing” evidence, rather than the lower legal “preponderance of the evidence” standard. The new plan would affect students who take out loans beginning July 1, 2019. Comments on the proposal are due 30 days after publication in the Federal Register.

    Lending Department of Education Student Lending

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  • NYDFS recommends online lenders be subject to state licensure and usury limits in new report

    Lending

    On July 11, the New York Department of Financial Services (NYDFS or the Department) released a study of online lending in New York, as required by AB 8938. (Previously covered by InfoBytes here.)  In addition to reporting the results of its survey of institutions believed to be engaging in online lending activities in New York, NYDFS makes a series of recommendations that would expand the application of New York usury and other statutes and regulations to online loans made to New York residents, including loans made through partnerships between online lender and banks where, in the Department’s view, the online lender is the “true lender.”

    In particular, NYDFS recommends, “[a]ll New York lenders should operate under the same set of rules and be subject to consistent enforcement of those rules to achieve a level playing field for all market participants….”  Elsewhere in the report, the Department states that it “disagrees with [the] position” that online lenders are exempt from New York law if they partner with a federally-chartered or FDIC-insured bank that extends credit to New York residents.  NYDFS criticizes these arrangements, stating its view that “the online lender is, in many cases, the true lender” because the online lender is “typically … the entity that is engaged in marketing, solicitation, and processing of applications, and dealing with the applicants” and may also purchase, resell, and/or service the loan.  

    NYDFS also noted that it opposed pending federal legislation that would reverse the Second Circuit’s decision in Madden v. Midland Funding, LLC, which held that federal preemption of New York’s usury laws ceased to apply when a loan was transferred from a national bank to a non-bank.  The Department expressed concern that, if passed, the bill “could result in ‘rent-a-bank charter’ arrangements between banks and online lender that are designed to circumvent state licensing and usury laws.”

    Noting that many online lenders remain unlicensed in New York, the Department states that “[d]irect supervision and oversight is the only way to ensure that New York’s consumers and small business owners receive the same protections irrespective of the channel of delivery….”  To this end, NYDFS recommended lowering the interest rate threshold for licensure from 16 percent to 7 percent.

    Although NYDFS stressed that its survey results may be unreliable due to uneven response rates, it reported that, for respondents, the average median APR for online loans to businesses was 25.9%, the average median APR for online loans to individuals for personal use was 14.8%, and the average median APR for the underbanked customers was 19.6% (New York currently caps interest for civil liability at 16% and at 25% for criminal liability).

    Overall, the report appears to forecast a more difficult regulatory and enforcement environment in New York for online lenders, as has been the case in West Virginia and Colorado.

    Lending State Issues NYDFS Online Lending Usury Consumer Finance Madden

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  • CFPB announces settlement with national bank to resolve alleged TILA violations

    Lending

    On June 29, the CFPB announced a $335 million settlement with a national bank who allegedly violated the Truth in Lending Act by failing to properly implement annual percentage rate (APR) reevaluation requirements, which would reduce APRs for certain consumer credit card accounts, consistent with Regulation Z. According to the consent order, the Bureau also claimed the bank failed to put in place reasonable written policies and procedures to conduct the APR reevaluations. Under the terms of the consent order, the bank is required to pay $335 million in restitution to affected consumers and implement corrected policies and procedures to ensure proper APR reevaluation processes. The Bureau further noted that it did not assess civil monetary penalties due to efforts undertaken by the bank to self-identify and self-report violations to the Bureau. The bank also voluntarily corrected the deficiencies, took steps to initiate remediation to affected consumers, and implemented compliance management system enhancements.

    Lending TILA CFPB Credit Cards Settlement

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  • New York Fed report finds CFPB oversight does not significantly reduce volume of mortgage lending

    Lending

    The Federal Reserve Bank of New York (New York Fed) released a June 2018 Staff Report titled “Does CFPB Oversight Crimp Credit?” which concludes that there is little evidence that CFPB oversight significantly reduces the overall volume of mortgage lending. The report compared the lending outcomes of companies subject to CFPB oversight with smaller institutions below $10 billion in total assets that are exempt from CFPB supervision and enforcement activities, as well as lending outcomes before and after the CFPB’s creation in July 2011. Using HMDA data, bank balance sheets, and bank noninterest expenses, the report concluded, among other things, that (i) CFPB oversight may have changed the composition of lending—supervised banks originated fewer loans to lower-income, lower-credit score borrowers; (ii) there has been a drop in lending to borrowers with no co-applicant by CFPB supervised banks; and (iii) there has been an increase in origination of  “jumbo” mortgage loans by CFPB supervised banks. The report noted that its results do not speak to the effect of the CFPB’s rulemaking, such as the TILA-RESPA integrated disclosure rule. 

    Lending CFPB Bank Supervision Mortgages Enforcement Mortgage Lenders

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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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  • DOJ, CFPB agree to early termination of consent order with indirect auto lender

    Lending

    On May 15, the auto lending branch of an international automobile company (indirect auto lender) reported in an 8-K filing that the DOJ and CFPB had reached an agreement that the indirect auto lender has met the requirements for early termination of a consent order entered into in 2016 over allegations of unfair lending practices. As previously covered in InfoBytes, a joint agency investigation under ECOA found that the indirect auto lender’s policies allowed for dealers to mark up a consumer’s interest rate on the retail installment contract above the established risk-based buy rate. The parties currently await final court approval of a joint stipulation and proposed order for early termination of the consent order from three years to two years in the U.S. District Court for the Central District of California.

    Lending Fair Lending DOJ CFPB ECOA Auto Finance Consumer Finance

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  • DOJ settles with Minnesota community bank to resolve fair lending violations

    Lending

    On May 8, the Department of Justice announced a settlement with a Minnesota community bank to resolve allegations that the lender excluded predominantly minority neighborhoods from its mortgage lending service in violation of the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA). According to the complaint filed in 2017, between 2010 and 2015, the bank engaged in unlawful redlining in and around Minneapolis-St. Paul, Minnesota by meeting the residential credit needs of individuals in majority-white census tracts, but avoided serving similar needs in majority-minority census tracts. The settlement requires the bank to expand its banking services in predominantly minority neighborhoods, including opening one full service branch within the specified census tract. In addition to compliance monitoring and reporting requirements, the bank is also required to (i) employ a Community Development Officer and an Executive leader; (ii) spend a minimum of $300,000 on advertising, outreach, and education and credit repair initiatives; (iii) invest a minimum of $300,000 in a program for special purpose loan subsidies; and (iv) continue to provide fair lending training to all employees.

     

    Lending DOJ Fair Lending Redlining ECOA Fair Housing Mortgage Lenders Mortgage Origination

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  • Illinois Attorney General sues online “pension sale” installment lender

    Lending

    On April 19, the Illinois Attorney General announced a lawsuit against a Nevada-based installment loan company alleging the company made illegal installment loans without a license. According to the press release, the Illinois Attorney General alleges that the company markets high rate installment loans in exchange for payments from a consumer’s pension benefits in violation of Illinois law. In addition, the Attorney General claims that the company illegally advertised its loans and concealed high finance charges from consumers and, in some instances, continued to withdraw money from accounts after consumers attempted to cancel the agreement. The Attorney General is seeking the contracts to be voided, an injunction against the behavior, restitution for consumers, and civil money penalties.

    Lending State Issues Installment Loans Pension Benefits Interest Rate State Attorney General

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