In a March 30, 2021 announcement, the Biden administration announced that it would be extending relief to approximately 1.14 million student loan borrowers who previously were not covered under the CARES Act relief enacted last year. These are borrowers who have defaulted on loans issued pursuant to the Federal Family Education Loan Program (“FFELP”). Specifically, under the measure, borrowers who have defaulted on FFELP loans will not face further penalties (and will see penalties already assessed unwound) and will also see their current interest rates reset to 0%. The Biden administration’s action will be retroactive to March 13, 2020—the day the governmental formally declared a state of emergency due to the COVID-19 pandemic—and will return FFELP loans that defaulted during this period to good standing, with credit bureaus asked to remove any related negative credit reporting, allowing the applicable borrowers to rehabilitate their credit scores. Continue Reading Approaching Student Loan Relief Piecemeal: The Biden Administration Extends CARES Relief to Defaulted FFELP Student Loan Borrowers; Weighs Options for Further Measures
The Consumer Financial Protection Bureau is finalizing its proposal to extend until October 1, 2022 the mandatory effective date of the new Qualified Mortgage definition based largely on a loan’s annual percentage rate (the “APR-Based QM”). For applications received prior to that date, lenders seeking to make QMs may opt for either the original QM definition based largely on the debt-to-income ratio (the “DTI-Based QM”) or the new APR-Based QM. In fact, the CFPB also extended the availability of QM status for loans eligible for purchase by Fannie Mae or Freddie Mac (the “Temporary GSE QM”), although as explained below, the availability of that option will be limited by forces outside the CFPB’s control.
After a significant public outreach process, the CFPB under prior Director Kraninger was set to terminate the DTI-Based QM (and repeal the stodgy Appendix Q) as of March 1, 2020. The agency initially provided a four-month transition period (until July 1, 2021) during which both the DTI-Based QM and the newly-minted APR-Based QM would be available. Additionally, the CFPB extended the availability of the Temporary GSE QM (often called the “GSE Patch”) until July 1, 2021. The CFPB intended that the four-month period would provide for an orderly transition, but without unnecessary delay. However, after the change in the Presidential Administration, which brought new leadership to the CFPB, and after several more months of pandemic-related economic concerns, the agency proposed to lengthen that transition period with the stated goal of making affordable mortgage credit available to the greatest extent possible.
In the meantime, while the “new” CFPB has been considering whether to delay the mandatory compliance date of the “old” CFPB’s QM rule, the Department of Treasury amended its preferred stock purchase agreements (PSPAs), to which the GSEs’ are subject, to impose new limits on the GSEs’ loan purchases. Among other limitations, the amended PSPAs provide that as of July 1, 2021, the GSEs may only purchase QMs that comply with the new APR-Based definition. The GSEs have each subsequently clarified that in light of the PSPA restrictions, they will no longer acquire loans for which an application is received on and after July 1, 2021 that do not meet the APR-Based QM Rule. The CFPB recognized that while its recent rule would allow GSE Patch loans to be QMs until October 1, 2022, it cannot control or predict restrictions placed through the PSPAs or by the Federal Housing Finance Agency.
Some industry participants had urged the CFPB to allow the transition to the new APR-Based QM to take place in July, pointing out that is a good solution reached after months of input from all sides. Still, some lenders, vendors, investors, and ratings agencies are continuing to work through how to ensure compliance with the new standards and measure risk. As we approach what may be the end of the current forbearance era this fall, the CFPB asserts that the more options, the better.
On March 23, 2021, Illinois Governor JB Pritzker signed into law Senate Bill 1792, enacting the Predatory Loan Prevention Act (PLPA) and capping interest at an “all-in” 36% APR (similar to the Military Lending Act’s MAPR) for a variety of consumer financing, effective immediately. The PLPA uses an expansive definition of interest, applies to a wide array of businesses, and voids any contract that exceeds the cap. Companies providing consumer financing in Illinois and secondary market purchasers should review their business practices and ensure that their financing arrangements do not violate the PLPA. We describe the requirements of the PLPA, discuss the transactions and entities subject to (and exempt from) the legislation, consider “true lender” and Madden implications, identify particular products affected, and set out penalties for violations in Mayer Brown’s Legal Update.
A little more than a month after rescinding its prior Policy Statement on abusive acts or practices, the Consumer Financial Protection Bureau (CFPB) has brought its first post-rescission abusiveness claim. In a complaint against a debt settlement company, the CFPB alleged that the company’s alleged practice of prioritizing the settlement of debts owed to affiliated lenders constituted an abusive act or practice. The complaint against the company quotes its website as stating that the company’s “‘skilled negotiators work to get your creditors to agree to discounted lump sum payoff amounts’” and quotes its sales scripts as saying that the company is “‘not owned or operated by any of your creditors.’” In reality, according to the complaint, the company’s owner was also the owner of one of the prioritized creditors and the owner of the other prioritized creditor was a former employee of the company’s owner. Taking these facts together, the CFPB alleged that the company violated the prong of the abusiveness prohibition that prohibits acts or practices that take unreasonable advantage of a consumer’s reasonable reliance on a company to act in the interests of the consumer. Continue Reading Abusiveness: Muddying the Waters
In January, we wrote about the CFPB’s latest lawsuit predicating an alleged federal UDAAP violation on the violation of a state law. The case involves claims against a mortgage lender who allegedly employed individuals working as loan originators, but who were not licensed as loan originators as required by state law. We noted that the CFPB claimed this conduct not only violated Regulation Z—which requires loan originators to be licensed in accordance with state law—but was also deceptive. The deception claim only alleged that the misrepresentation that the loan originators were licensed “might have” impacted consumer decisionmaking. As we previously noted, however, “a representation is only material if it is ‘likely’ to affect a consumer’s behavior—that a consumer ‘might have acted differently’ is not enough.”
The CFPB has now apparently recognized the deficiency in its pleading and recently filed an amended complaint in the case. The amended complaint adds no new claims; its primary purpose appears to be shoring up the deception claim by striking “might have” and replacing it with “would likely have,” so that the CFPB’s allegation now reads: “[The Lender’s] misleading misrepresentations, omissions, or practices were material because a reasonable consumer would likely have acted differently, including by taking their business elsewhere, saving time and money, if informed of the truth.” (emphasis added) To drive the point home, the CFPB has also added a new paragraph to the complaint alleging that “[the Lender’s] express misrepresentations were material to consumers’ decision-making with respect to choosing their mortgage originator, because they presumptively affected the consumer’s conduct or decision with regard to their mortgage originator.” (emphasis added) Here, the CFPB is relying on the principle that express misrepresentations are presumed to be material. These edits appear to cure the prior pleading deficiency, but it will be interesting to see if the defendant or the court pick up on the CFPB’s prior formulation to argue that the Complaint does not allege any facts demonstrating such likely consumer reliance. In any event, the CFPB appears firmly committed to alleging federal UDAAP claims whenever it believes it can do so, regardless of whether other more clearly applicable claims also apply to the conduct at issue.
Businesses that place phone calls or send text messages to consumers may find some relief in a recent United States Supreme Court decision that limits the applicability of the Telephone Consumer Protection Act (“TCPA”). The TCPA prohibits any person from placing phone calls (including text messages) to a wireless number using an automated telephone dialing system (“ATDS” or an “autodialer”) or pre-recorded or artificial voice without the recipient’s prior express consent (or, for marketing calls, prior express written consent), unless the call is made for an emergency purpose. Courts and businesses have disagreed over what constitutes an “autodialer” for TCPA purposes.
The Supreme Court ruled on April 1, 2021, in Facebook v. Duguid, that the key to whether a device is an “autodialer” under the TCPA is whether it uses a random or sequential number generator. Under the Court’s ruling, an “autodialer” is a device with the capacity either to store a telephone number using a random or sequential generator, or to produce a telephone number using a random or sequential number generator. A device that can store and dial telephone numbers—such as a cell phone or a predictive dialer—but that does not use a random or sequential number generator, is not an autodialer.
Prior to the Supreme Court decision, some lower courts interpreted “autodialer” under the TCPA more broadly. The Ninth Circuit Court of Appeals issued a unanimous decision in September 2018 holding that an autodialer includes equipment that (i) either has the capacity to store numbers to be called, or to produce numbers to be called using a random or sequential number generator, and (ii) has the capacity to dial such numbers. Under this broad interpretation, any communications device that can store and dial phone numbers could be considered an autodialer. For example, even if a customer service agent were to manually dial a consumer’s number using a cell phone, since the cell phone theoretically has the capacity to both store and dial numbers, it arguably would be considered an autodialer. If the business did not obtain sufficient consent from the consumer, such calls would violate the TCPA.
The TCPA has been a common source for class action lawsuits due to the potential for lucrative damage awards. In addition to authorizing enforcement actions by the Federal Communications Commission or state attorneys general, the TCPA provides for a private right of action under which plaintiffs may recover up to $1,500 per call for willful or knowing violations, among other relief, with no cap on damages. The Supreme Court’s decision may slow the wave of TCPA class actions, which would be a welcome relief to businesses.
One of the great ironies of the Supreme Court’s decision in Seila Law v. CFPB, in which the Supreme Court held that the Consumer Financial Protection Bureau’s (CFPB) structure was unconstitutional, is that it effectively provided no relief to Seila Law, the party that took the case all the way to the Supreme Court. On remand, the Ninth Circuit held that the CFPB’s case against Seila Law could continue. Now, for the first time, a court has held that a pending CFPB enforcement action must be dismissed because of that constitutional infirmity. On March 26, 2021, a federal district court dismissed the CFPB’s action against the National Collegiate Student Loan Trusts, a series of fifteen special purpose Delaware statutory trusts that own $15 billion of private student loans (the NCSLTs or Trusts), finding that the agency lacked the authority to bring suit when it did; that its attempt to ratify its prior action came too late; and that based on its conduct, the CFPB could not benefit from equitable tolling. In doing so, the court avoided ruling on a more substantial question with greater long-term implications for the CFPB and the securitization industry—whether statutory securitization trusts are proper defendants in a CFPB action. Continue Reading CFPB Suffers First Loss After Seila Law
On Thursday (March 26, 2021), Senator Chris Van Hollen (D-MD) introduced a Congressional Review Act (CRA) resolution of disapproval to invalidate the Office of the Comptroller of the Currency’s (OCC) true lender rule. The resolution is co-sponsored by Senate Banking Committee Chair Sherrod Brown (D-OH) and Senators Jack Reed (D-RI), Elizabeth Warren (D-MA), Catherine Cortez-Masto (NV), Tina Smith (D-MN), and Dianne Feinstein (D-CA). Rep. Chuy Garcia (D-IL) participated in the introduction of the resolution, signaling support for the resolution by House Democrats. The Biden Administration has not yet stated its support for the resolution, though President Biden is likely to sign the resolution into law if Congress passes it.
With the statutory deadline for Congress to take up the resolution of disapproval quickly approaching in approximately mid-May, Congress will have to either pass the resolution when it returns in April from its two week recess, or effectively defer to President Biden’s future Comptroller of the Currency to determine the future of the rule. Given the Democrats’ narrow majorities in both houses of Congress, the vote on the resolution is expected to be close with possible defections on both sides of the aisle. If Congress does not pass the resolution by the statutory deadline, the new Comptroller of the Currency could still seek to repeal or modify the rule at a later date. President Biden has not yet announced a nominee for Comptroller. Continue Reading Congress Prepares to Invalidate OCC’s True Lender Rule
On March 11, 2021, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) rescinded its January 24, 2020 Statement of Policy Regarding Prohibition on Abusive Acts or Practices (“Policy Statement”). The Acting Director of the CFPB, David Uejio, has been working quickly to reverse Kraninger-era policies, and the Policy Statement is the latest victim. Under the original Policy Statement, the CFPB said that it would: (1) generally rely on the abusiveness standard to address conduct only where the harm to consumers outweighs the benefit, (2) avoid making abusiveness claims where the claims rely on the same facts that the Bureau alleges are unfair or deceptive, and (3) not seek certain types of monetary relief against a covered person who made a good-faith effort to comply with a reasonable interpretation of the abusiveness standard.
In rescinding the Policy Statement, the CFPB highlighted the Policy Statement failed to (1) provide clarity to regulated entities on the abusiveness standard and (2) prevent consumer harm. In reality, the rescinded guidance is unlikely to have a major impact on the Bureau’s supervisory and enforcement efforts. Below, we highlight key takeaways from the announcement. Continue Reading CFPB Rescinds Policy Statement on Abusiveness
As expected, New York has broadened the reach of its new commercial financing disclosure law less than two months after its enactment.
S.B. 5470 imposed a range of Truth in Lending-like disclosure requirements on a variety of commercial financing transactions. On February 16, 2021, New York Governor Andrew Cuomo signed S.B. 898 into law, clarifying and broadening the effect of the previous legislation.
Read more about the changes that commercial financers should note in Mayer Brown’s Legal Update.