Maryland regulations governing “shared appreciation agreements” become effective November 25, 2024.  After the Maryland Commissioner of Financial Regulation proposed regulations governing required disclosures for shared appreciation agreements in July 2024, the regulations were finalized on October 30, 2024, with no substantive revisions.

As a reminder, a “shared appreciation agreement” is defined for purposes of Maryland’s Credit Grantor mortgage laws as “a writing evidencing a transaction or any option, future, or any other derivative between a person and a consumer where the consumer receives money or any other item of value in exchange for an interest or future interest in a dwelling or residential real estate, or a future obligation to repay a sum on the occurrence of an event such as: (1) the transfer of ownership; (2) a repayment maturity date; (3) the death of the consumer; or (4) any other event contemplated by the writing.”

Below is a summary of the final regulations governing shared appreciation agreements. 

Continue Reading New Disclosure and Other Requirements for Shared Appreciation Agreements Take Effect in Maryland

On October 22, 2024, the Consumer Financial Protection Bureau (CFPB) marked a significant milestone in the shift towards open banking in the United States with the finalization of its rulemaking on Personal Financial Data Rights. As we discussed in our Legal Update on the October 2023 proposed rule, the final rule provides the long-awaited implementation of Section 1033 of the Dodd-Frank Act, enacted in 2010, and establishes a comprehensive regulatory framework to provide consumers—and their authorized third parties—with rights to receive structured, consistent and timely access to consumers’ personal financial data held by financial institutions and other financial services providers.

The 594-page final rule is intended to allow consumers to access and share data held by banks, credit unions, credit card issuers, digital wallets, payment apps and other financial service providers, with the goal of improving customer choice and increasing competition, while strengthening consumer protections by imposing limitations on authorized third parties’ collection, use and retention of consumers’ data. Financial institutions subject to the final rule could face a variety of compliance, operational and technical challenges as they build out the infrastructure necessary to comply with the final rule. For the largest financial institutions, which include depository institutions with total assets in excess of $250 billion and non-depository institutions that generated at least $10 billion in total receipts in either calendar year 2023 or calendar year 2024, compliance is required by April 1, 2026, with compliance by smaller covered institutions required in phases beginning April 1, 2027, through April 1, 2030.

Continue Reading CFPB Issues Long-Awaited Open Banking Rule; Lawsuit Immediately Filed

For the most recent edition of Supervisory Highlights, the Consumer Financial Protection Bureau focused on examiners’ findings in the auto finance sector. Several of these practices were identified by the CFPB in prior Supervisory Highlights. Many of the CFPB’s concerns relate to trends in the marketing, sales, financing, and refunds related to add-on products like optional vehicle- or payment-protection, and to consumers’ difficulty in cancelling those products or receiving refunds. The Federal Trade Commission and state regulators also have prioritized these areas, and several states have recently passed legislation addressing add-on products (including refunds, cancellation and notification). In several of the findings, the CFPB noted that the failures related to inadequate oversight of service providers, reflecting another recurring theme in CFPB’s compliance management expectations.

The CFPB has framed many of these targeted practices as unfair, deceptive or abusive acts or practices (“UDAAP”), which is consistent with certain of the agency’s recent consent orders or suits related to auto servicing practices.

In response to the findings, the CFPB generally demanded ceasing the allegedly noncompliant practices, developing policies and procedures to ensure compliance going forward, and in some cases refunding amounts to consumers.

Motor vehicle dealers, auto finance companies, servicers and secondary market purchasers of auto loans should take note of these highlighted practices when evaluating their policies and procedures.

Continue Reading CFPB Supervisory Highlights Target Certain Auto Lending and Servicing Practices

In response to the significant ambiguities raised by New Hampshire’s recent amendments to its Motor Vehicle Retail Installment Sales Act — not to mention their immediate effectiveness and draconian liability provisions — the state’s Banking Department has issued several nuggets of guidance.

Recently, the Department sought to address the pressing question of whether persons involved in various financing transactions and securitizations involving motor vehicle retail installment contracts must now obtain a license. As of August 26, 2024, the Department’s web site states that securitization trusts that are established for the purpose of pooling retail installment contracts and reconstituting them into securities are not required to obtain a sales finance company license in the state. While the Department stated further that the licensing requirement will typically be fulfilled by the servicer or other entity responsible for servicing the contracts in the securitization trust, it did not expressly address the licensing obligations applicable in other types of financing transactions or to other types of special purpose entities. We expect that a similar licensing exemption would apply to those transactions and entities, because the servicer would need to be licensed or an exempt entity.

Continue Reading New Hampshire Banking Department Clarifies Licensing for Motor Vehicle Financing

On August 2, 2024, New Hampshire enacted legislation that significantly revises its Motor Vehicle Retail Installment Sales Act, effective July 1, 2024.

Unfortunately, that effective date is not a typographical error. The New Hampshire Banking Department apparently tried during the legislative process to extend the effective date until January 1, 2025, but that extension did not make it into the enacted bill. While the bill was enacted with an effective date of July 1, 2024, the Department attempts at least to provide assurances that the bill became effective upon signing, and not retroactively. Still, the effective date of the amendments is just one of the topics requiring clarification.

Continue Reading New Hampshire Significantly Amends its Motor Vehicle Retail Installment and Sales Finance Company Act

Members of Mayer Brown’s Financial Services team summarize the main takeaways of the CFPB’s proposal to amend the Regulation X mortgage servicing rules, focusing on the proposal to amend the requirements for mortgage servicers to assist borrowers in default who seek payment assistance, the proposed amendments to foreclosure safeguards during that process, and the CFPB’s proposal regarding providing certain communications in languages other than English. Listen here.

On July 18, 2024, the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) issued a proposed interpretive rule (the “Proposed Rule”) purporting to clarify the application of the Truth in Lending Act (“TILA”) and Regulation Z to earned wage access (“EWA”) programs.  Unlike other interpretive rules issued by the Bureau, including the interpretive rule on the application of certain TILA and Regulation Z “credit card” provisions to buy now, pay later products, the Proposed Rule is styled as a proposal and request for comment that will not become effective until after the CFPB considers comments and issues a final interpretive rule.  In this blog post, we discuss the important features of the Proposed Rule.

Continue Reading A New Play in EWA?  CFPB Issues Proposed Interpretive Rule On Earned Wage Access

On June 18, state-chartered banks and their fintech partners received welcome news in ongoing litigation challenging the scope of Colorado’s opt-out from the interest exportation regime established by the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). The US District Court for the District of Colorado issued a preliminary injunction prohibiting state officials from enforcing state-specific interest limitations against any member of the plaintiff associations—the National Association of Industrial Bankers, American Financial Services Association and American Fintech Council—with respect to any loan not “made” in Colorado, where “made” means that the lender is located and conducts certain key loan-making functions.

Continue Reading DIDMCA Opt-Out Update—District Court Constrains Colorado Opt-Out

On May 30, the Supreme Court issued its opinion in Cantero v. Bank of America, N.A., in which the Court was set to decide whether national banks must comply with state interest-on-escrow laws (and by extension, certain other state laws). Rather than providing a clear preemption standard, the Court sent the issue back to the Second Circuit with instructions to conduct a “nuanced comparative analysis” of prior opinions to determine how those laws stack up in terms of interference with banks’ powers.

The Cantero case relates specifically to whether Bank of America, a national bank, must comply with New York law requiring a person maintaining an escrow account to credit the account with interest at a rate of 2%. The Bank argued that the National Bank Act preempts such state law requirements, and the Second Circuit agreed. The Second Circuit held that the preemption determination does not turn on how much a state law impacts a national bank, but rather whether it purports to “control” the bank’s exercise of its powers. In the court of appeals’ view, it is the nature of an invasion into a national bank’s enumerated or incidental operations—not the magnitude of its effects—that determines whether a state law purports to exercise control over a federally granted banking power and is thus preempted. The Second Circuit essentially held that preemption is relatively broad – that the enumerated and incidental powers of national banks must not be hampered by state laws.

On the other hand, the Ninth Circuit has held that Bank of America, and of course other national banks, must comply with California’s statute requiring the payment of interest on escrow funds – that the state statute is not preempted. In 2018, the Ninth Circuit held (in Lusnak v. Bank of America) that the state law does not “prevent or significantly interfere with [the bank’s] exercise of its powers.” The Ninth Circuit focused on the magnitude of the state law’s effects, essentially holding that preemption is relatively narrow.

In resolving this conflict between the circuit courts, Justice Kavanaugh (writing for a unanimous Court) reinforced the Dodd-Frank Act and its incorporation of the Court’s opinion in Barnett Bank of Marion County, N.A. v. Nelson. The Act provides that a state consumer financial law is preempted only if the law discriminates against national banks, or prevents or significantly interferes with the exercise by a national bank of its powers, and expressly ties that standard to the opinion in Barnett Bank.

The Court’s Cantero opinion does not cite the rest of that statute, which provides that any such preemption determination may be made “by a court, or by regulation or order of the Comptroller of the Currency [OCC] on a case-by-case basis, in accordance with applicable law.” The OCC’s regulations provide that a national bank may make real estate loans without regard to state law limitations concerning, among other issues, “escrow accounts.” While those regulations predate the Dodd-Frank Act, the Court does not address whether Congress intended, by expressly mentioning those regulations, to incorporate that preemption into the Barnett Bank analysis. The Court notes only that the Second Circuit did not address the regulations’ significance, “if any.”

While that standard – prevent or significantly interfere with bank powers – seems open to interpretation (and in fact has led to different interpretations, as evidenced by the split between the Second and Ninth Circuits), Justice Kavanaugh makes the analysis seem crystal clear. One must simply consider the interference with bank powers caused by the state laws analyzed in Barnett Bank and the Supreme Court precedents it discusses (some of which date back to 1870), and determine whether the nature and degree of interference caused by the state law at issue is “more akin” to those that were deemed preempted or to those that were deemed not preempted. The opinion also urges us to use common sense. In the end, the Court remanded the case to the Second Circuit to undertake that analysis.

One could expect that upon undertaking that analysis as the Court instructs, the Second Circuit may come to the same substantive conclusion – that New York’s interest-on-escrow requirement is preempted for national banks. One could also guess that the Ninth Circuit may, if it were asked or required to undertake its analysis anew, come to its same conclusion that California’s similar interest-on-escrow requirement is not preempted. Inconsistent preemption results for substantially similar laws in different states cuts against the rationale for preempting certain state laws for national banks in the first place.

Looking beyond state laws on mortgage escrow accounts, the Court’s Cantero opinion will appear to require nuanced comparisons of the impact of all sorts of state laws with age-old precedents, and expert testimony on the degree and magnitude of the laws’ effects on banks’ exercise of enumerated and incidental powers. Unfortunately, the result of the Court’s opinion may be less straight-forward than Justice Kavanaugh makes it sound. In a sense, we are back where we started, without bright lines for determining whether national banks must comply with an endless assortment of state laws.

A recipe for continued litigation – and we still do not know whether national banks must pay interest on mortgage escrow accounts in New York.

For additional information on the Court’s decision, see Mayer Brown’s Supreme Court & Appellate Practice page.

On May 22, the Consumer Financial Protection Bureau (“CFPB”) issued an interpretive rule purportedly clarifying the breadth of the term “credit card” for Truth in Lending Act (“TILA”)/Regulation Z purposes in the buy-now/pay-later (“BNPL”) context (the “Interpretive Rule”). The clarification asserts that “digital user accounts” that permit consumers to access credit in the course of a retail purchase are “credit cards,” subjecting the “card issuer” to certain additional disclosure and substantive obligations under Federal law. The Interpretive Rule would become effective 60 days after publication in the Federal Register. The CFPB is accepting comments on the Interpretive Rule through August 1, 2024, notwithstanding that the Bureau’s position is that notice-and-comment rulemaking is unnecessary for its interpretation to become effective.

Continue Reading CFPB Interpretive Rule Exposes Some BNPL Programs to Credit Card Requirements