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CA Attorney General secures $67 million in debt relief for former students of defunct for-profit school
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.
New York governor signs bill authorizing NYDFS to study online lending in the state
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.
Court orders Department of Education to cease collection efforts on student loans used for defunct for-profit school
On May 25, the U.S. District Court for the Northern District of California granted in part a preliminary injunction barring the U.S. Department of Education (Department) from continuing collection efforts on student loans used for programs at a now defunct for-profit college. The for-profit school closed in 2015 after a federal fraud investigation by the Department. The decision results from a December 2017 putative class action filed by former students of the school against the Department. The complaint alleged the Department violated the Administrative Procedures Act (APA) and the Privacy Act of 1974 by its December 2017 announcement that it would use an “average earnings” metric to determine what to charge students for the value of the education they received at the college. According to the former students, the previous policy—which measured the job placement rate of graduates—would have provided full loan forgiveness for the federal student loans used for the defunct school. In response to the students’ motion for a preliminary injunction, the court granted the students’ request to prevent the Department from using the “average earnings” metric, but denied the motion to require the Department to use the previous job placement metric. Additionally, among other things, the judge denied the students’ request to order the Department to remove all negative credit reporting but did order the Department to cease collection efforts on the loans.
Maryland governor signs provisions amending Maryland Consumer Loan Law’s small lending requirements
On May 15, the Maryland governor signed legislation to establish requirements for lenders making covered loans in the state. Among other things, HB1297 increases the threshold for which a loan is subject to small lending requirements within the Maryland Consumer Loan Law (MCLL) from $6,000 to $25,000. The law also prohibits (i) lenders who are not licensed in the state from making loans of $25,000 or less, unless the person is exempt from requirements under MCLL; (ii) a person contracting “for a covered loan that has a rate of interest, charge, discount, or other consideration greater than the amount authorized under state law”; and (iii) covered loans that would be a violation of the Military Lending Act. Loans that violate these provisions are deemed void and unenforceable except in limited circumstances. The law takes effect January 1, 2019.
DOJ, CFPB agree to early termination of consent order with indirect auto lender
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.
DOJ settles with Minnesota community bank to resolve fair lending violations
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.
District Court dismisses breach of contract suit against Connecticut firm
On May 1, the U.S. District Court for the District of Connecticut dismissed a malpractice suit brought against a Connecticut-based law firm for allegedly inducing a Boston-based mortgage/mezzanine lender and its Delaware-based trustee (plaintiffs) to enter into a contract resulting in a loss of approximately $13 million. The lender alleged that it entered into a $12 million mezzanine loan agreement in 2012 with a company that owned commercial property located in Connecticut (borrower). The plaintiffs asserted that the firm acted as counsel to various entities associated with the borrower, and issued an opinion letter to the lender concerning agreements memorializing the loan transaction and establishing borrower’s interest in the loan collateral. When the borrower defaulted on the loan due to allegedly misrepresenting ownership percentages, the plaintiffs filed suit against the firm claiming, among other things, (i) breach of contract for rendering an opinion letter, which the firm and borrower intended the lender to rely upon as part of the transaction; (ii) breach of the covenant of good faith and fair dealing; and (iii) negligent misrepresentation.
The firm, however, argued that the lender’s claims lacked standing because (i) it was never a client of the firm and the opinion letter was not a contract; (ii) “a third-party beneficiary of a written contract [between the borrower and the firm] cannot recover for a breach of implied covenant of good faith and fair dealing; and (iii) claims of negligent misrepresentation were barred by the statute of limitations.
The court agreed with the firm and ruled that the opinion letter was not a contract that created a contractual obligation the firm could breach. Because the lender and related entities were “neither a party to a contract with [the firm] nor the intended third-party beneficiary of a contract between the borrower and [the firm] ... their breach of contract claim against [the firm] must be dismissed,” the judge stated. The court also dismissed the remaining allegations, stating the lender had not sufficiently alleged that it reasonably relied on the advice of the firm’s advice to make the loan to the borrower.
Illinois Attorney General sues online “pension sale” installment lender
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.
Department of Education, Veterans Affairs team up to simplify student loan discharge process for disabled veterans
On April 16, the U.S. Department of Education announced a partnership with the U.S. Department of Veterans Affairs (VA) to identify disabled student loan borrowers who qualify for debt forgiveness. Eligible veterans with federal student loans or aid through the Teacher Education Assistance for College and Higher Education Grant Program that are identified as a match on the National Student Loan Data System and the VA database will be notified of their potential eligibility in the mail and will receive a Total and Permanent Disability Discharge application.
NYDFS announces investigation into rent-to-own as predatory lending
On April 16, the New York Department of Financial Services (NYDFS) announced an investigation into whether rent-to-own and land installment home purchase agreements constitute unlicensed, predatory mortgage lending in New York. NYDFS acknowledged the ongoing investigation while releasing a consumer alert to New Yorkers about rent-to-own and land installment contract pitfalls. The alert notifies consumers that the agreements may violate certain New York laws and regulations governing fair lending, mortgage protection, interest rates, habitability, and property condition. NYDFS encourages consumers to consider a traditional leasing option and be aware of the state of disrepair the property may be in before signing the agreement.