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9th Circuit: Payday arbitration remanded because of new California interest rate law
On June 9, the U.S. Court of Appeals for the Ninth Circuit remanded a case against a payday lender back to district court because a newly issued California amendment took effect—which prohibits lenders from issuing loans between $2,500 and $10,000 with charges over 36 percent calculated as an annual simple interest rate (covered by InfoBytes here)—which may impact the court’s analysis. As also previously covered by InfoBytes, plaintiffs filed a putative class action suit against the payday lender alleging the lender sells loans with usurious interest rates, which are prohibited under California’s Unfair Competition Law and Consumer Legal Remedies Act. The lender moved to compel arbitration, but the district court concluded the arbitration provision was unenforceable. In addition to finding the arbitration provisions procedurally unconscionable, the court found that the provision contained a waiver of public injunctive relief, which was substantively unconscionable based on the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here).
On appeal, the 9th Circuit remanded the case back to the district court to reconsider whether the consumer’s requested injunction enjoining the payday lender from issuing loans above $10,000 would actually prevent a threat of future harm in light of the new California law and considering the operative complaint does not allege the lender issued or continues to issue loans above $10,000. Additionally, the appellate court rejected the lender’s arguments that McGill was preempted under the Federal Arbitration Act (FAA) and agreed with the district court’s application of California law, because “Kansas law is contrary to California policy and [] California holds a materially greater interest in this litigation.”
Waters and Meeks introduce Congressional Review Act resolution to reverse OCC’s CRA rule
On June 11, Chair of the House Financial Services Committee, Maxine Waters (D-CA) and Chair of the Subcommittee on Consumer Protection and Financial Institutions, Gregory Meeks (D-NY), introduced a Congressional Review Act resolution to reverse the OCC’s final rule to modernize the regulatory framework implementing the Community Reinvestment Act (CRA). The OCC’s final rule (covered by a Buckley Special Alert), while technically effective October 1, provides for at least a 27-month transition period for compliance based on a bank’s size and business model. However, Waters criticized the OCC’s decision to move forward with the rule “despite the Federal Reserve and the FDIC—the other regulatory agencies responsible for enforcing CRA—declining to join in the rulemaking.” Waters argued that the final rule “will result in disinvestment in many low- and moderate-income communities,” with Meeks stating that the OCC’s decision to “put forward a rushed, incomplete rule. . .will harm the very communities the CRA is meant to support.”
HUD works with online search platform to improve FHA compliance
On June 11, HUD announced that it worked with an online search platform to better align the platform’s advertising policies with the requirements of the Fair Housing Act (Act)—specifically, the Act’s prohibition on discriminatory advertising in connection with the sale, rental, or financing of housing, with HUD noting that the prohibition “includes restricting who sees housing-related ads on these bases.” HUD states that the online search platform adopted a policy that prohibits “advertisers from engaging in certain discriminatory practices when placing housing-related ads using [the platform]’s advertising services” and has indicated that it will continue to work with HUD to uphold the principles of the Act in the online and targeted advertising space. The announcement notes that HUD will continue to review online advertising platforms to ensure compliance with the Act.
SBA issues PPP “EZ” loan forgiveness application
On June 16, the Small Business Administration (SBA), in consultation with the U.S. Treasury Department, released the Paycheck Protection Program (PPP) EZ Loan Forgiveness Application. According to the PPP Loan Forgiveness Application Form 3508EZ instructions, a borrower may use the streamlined form if it meets one of three criteria: (i) the borrower is self-employed, an independent contractor, or sole proprietor with no employees at the time of application; (ii) the borrower did not reduce salary or wages of any employee by more than 25 percent during the covered period and did not reduce the number of employees or the average paid hours of employees; or (iii) did not reduce salary or wages of any employee by more than 25 percent during the covered period and was unable to operate during the covered period at the same business activity level as prior to February 15, 2020, due to compliance with certain government requirements. Recently, a group of bipartisan senators urged the SBA to streamline the loan forgiveness form arguing that the “11-page forgiveness application” was “beyond the program’s intent” and that it was unnecessarily onerous (covered by InfoBytes here).
Additionally, the SBA released additional revisions to the interim final rule implementing Section 1102 of the CARES Act, which establishes the PPP, to reflect changes made by the PPP Flexibility Act of 2020. InfoBytes coverage regarding the PPP Flexibility Act changes can be found here.
SEC temporarily allows municipalities to sell securities to banks
On June 16, the SEC released a temporary exemptive order, which provides a temporary conditional exemption for registered municipal advisors to sell municipal securities to banks, their wholly-owned subsidiaries engaged in commercial lending and financing activities, and credit unions. Specifically, the order, which is intended to “address disruption in the municipal securities market” due to Covid-19, provides municipal advisors a temporary exemption from broker registration under Section 15 of the Securities Exchange Act of 1934. The order notes that most municipal issuers facing “significant budget shortfalls” do not meet the eligibility criteria for the Federal Reserve Board’s Municipal Liquidity Facility, and therefore, the temporary exemption will help to “facilitate more timely and efficient access to bank financing alternatives by municipal issuers.” The order details the permitted activities allowed under the temporary exemption, along with written representations the municipal advisor must obtain. Additionally, the order restricts the aggregate principal amount of a municipal security to $20 million. The temporary exemption expires on December 31.
CFPB issues CARES Act credit reporting FAQs
On June 16, the CFPB released a set of Frequently Asked Questions (FAQs) concerning the Bureau’s previously issued policy statement addressing consumer reporting agencies’ (CRAs) and furnishers’ credit reporting responsibilities under the CARES Act amendments to the Fair Credit Reporting Act (FCRA). The policy statement also emphasized that the Bureau is taking a “flexible supervisory and enforcement approach during this pandemic regarding compliance with the [FCRA] and Regulation V,” including refraining from citing in examinations or bringing enforcement action against CRAs or furnishers acting in good faith. (Covered by InfoBytes here.)
Addressed within the FAQs are topics for furnishers to consider when complying with the CARES Act requirements. These include: (i) reporting as current certain accounts for consumers affected by the Covid-19 pandemic; (ii) citing or suing furnishers that violate the FCRA by failing to investigate disputes; (iii) defining an “accommodation” for purposes of the FCRA amendments, and clarifying whether furnishers are required to provide accommodations to impacted consumers, and if so, what their consumer reporting obligations will be; (iv) clarifying that “using a special comment code to report a natural or declared disaster or forbearance” is not a substitute for complying with the CARES Act credit reporting requirements; (v) warning that reporting forbearances on accounts that are not delinquent, or for which a consumer has not requested a forbearance, “increases the risks of inaccurate reporting and consumer confusion”; and (vi) specifying account status reporting requirements after a CARES Act accommodation ends.
Main Street Lending Program opens for lender registration
On June 15, the Federal Reserve Bank of Boston (Boston Fed) announced the opening of lender registration for the Main Street Lending Program. The Main Street Lending Program is administered by the Boston Fed and was established pursuant to the CARES Act to support small and medium-sized businesses (covered by a Buckley Special Alert). Recently, the Federal Reserve expanded the program to extend five-year loans with principal payments deferred for two years and interest payments deferred for one year. Additionally, the Fed (i) lowered the minimum loan size for certain loans to $250,000 from $500,000; and (ii) raised the purchase rate to 95 percent of each eligible loan (covered by InfoBytes here).
According to the announcement, lenders must register for the program using the lender portal. The program will begin purchasing loans soon, and, once purchases begin, all the necessary documents will be submitted through the portal. The Boston Fed encourages lenders to begin making program loans immediately.
Fed proposes expansion of Main Street Lending Program to nonprofit organizations
On June 15, the Federal Reserve Board (Fed) announced plans to seek public feedback on a proposal to expand the Main Street Lending Program to tax-exempt, nonprofit organizations. The proposed expansion would allow small and medium-sized nonprofits to apply for loans for additional liquidity, provided they were in sound financial condition prior to the start of the Covid-19 pandemic. The loan terms would be the same as those for Main Street business loans, which include (i) a minimum loan size of $250,000 and a maximum loan size of $300 million; and (ii) principal payment deferments for the first two years of a loan, and interest payment deferments for one year. The proposed expansion would also provide two loan options with modified borrower eligibility requirements that “reflect the operational and accounting practices of the nonprofit sector.” Feedback on the proposal may be submitted through June 22. The Fed’s announcement also contains a chart covering the detailed changes and term sheets for the program’s Nonprofit Organization Expanded Loan Facility and Nonprofit Organization New Loan Facility.
SBA reopens economic injury disaster loans and advance program
On June 15, the Small Business Administration (SBA) reopened the Economic Injury Disaster Loan (EIDL) and the EIDL Advance program portal to new applicants experiencing economic impacts due to the Covid-19 pandemic, including qualified small businesses and U.S. agricultural businesses. The EIDL program offers long-term, low-interest federal disaster loans for small businesses or non-profit organizations that can be used to cover payroll and inventory, pay debt, or fund other expenses not already covered by a Paycheck Protection Program loan. The loans carry interest rates of 3.75 percent for small businesses and 2.75 percent for non-profits and have terms up to a maximum of 30 years. The first payment on these loans will also be deferred for one year. In addition, as part of the loan process, qualified applicants may also apply for an EIDL Advance, which “will provide up to $10,000 ($1,000 per employee) of emergency economic relief to businesses that are currently experiencing temporary difficulties.” These “emergency grants,” SBA notes, do not have to be repaid.
New Jersey Bureau of Securities begins annual examinations of investment advisors
On June 12, the New Jersey Bureau of Securities, within the Office of the Attorney General Division of Consumer Affairs, announced that its annual investment adviser examinations are underway. This year’s examination will include questions asking investment adviser firms, among other things, about the impact of Covid-19 on operations and the steps taken to protect senior investors. The examination intends to survey the impact Covid-19 has had on investment advisers and to assess their business continuity plans.