On May 9, 2022, the CFPB issued an Advisory Opinion outlining its position that the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B, extend beyond applicants seeking credit to include those who have received credit. The 16-page Advisory Opinion lays out the Bureau’s position that the statutory text, legislative purpose and judicial precedent support this conclusion. The Advisory Opinion points out that this has been the “longstanding position” of the Bureau and echoes arguments made last year in an interagency amicus brief filed with the Court of Appeals for the Seventh Circuit. As an interpretive rule, the Advisory Opinion is exempt from the notice-and-comment rulemaking procedures under the Administrative Procedure Act.

ECOA defines an “applicant” as any person who applies to a creditor directly for an extension, renewal or continuation of credit (or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit). Regulation B defines “applicant” more broadly as “any person who requests or who has received an extension of credit from a creditor.” The Bureau cites to ECOA’s definition of “adverse action” to support its position that the legislative intent was to cover consumers who applied for and received credit and are now existing borrowers. Specifically, ECOA defines “adverse action” as “a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested.” The Advisory Opinion also points to ECOA’s broad anti-discrimination provision, which prohibits creditors from discriminating against applicants in connection with any aspect of a credit transaction.

Although the Advisory Opinion acknowledges that several district courts have interpreted “applicant” to include only consumers actively seeking credit, the Bureau states that this interpretation is “not persuasive.” Citing to courts that have read the statute more broadly to protect existing borrowers—including the only circuit court to have addressed the issue—the Bureau pointed to language in ECOA protecting people from discrimination in the “denial or termination of credit.” In the Advisory Opinion, the CFPB seemingly criticizes creditors that “fail to acknowledge” ECOA and Regulation B apply to borrowers even after origination, including the provision of adverse action notices in connection with a revocation of credit or an unfavorable change in the terms of credit.

In issuing the Advisory Opinion, Director Chopra stated that the CFPB is “ramping up its efforts to issue guidance and advisory opinions” and suggests that this opinion is intended to make clear that anti-discrimination protections do not vanish once a customer obtains a loan.

On May 2, 2022, the Consumer Financial Protection Bureau released the Spring 2022 edition of its Supervisory Highlights (“Supervisory Highlights” or “Report”).  This edition covers examinations completed between July 2021 and December 2021, and notably is the first edition that covers some examinations completed during Director Rohit Chopra’s tenure at the Bureau.

Interestingly, although the Bureau recently has emphasized fair lending and anti-discrimination concerns and the Report itself states that an important goal of the Bureau’s supervisory work “is to foster financial inclusion and racial equity,” this edition does not include any fair lending-related findings.  The Report also does not include any mortgage servicing-related findings despite the Bureau’s recent focus on servicing for borrowers impacted by the COVID-19 pandemic.

Supervisory Observations

The Supervisory Highlights identifies violations of law in nine areas: auto loan servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, prepaid accounts, remittances, and student loan servicing.  As is the Bureau’s common practice, the Report refers to institutions in the plural even if the related findings pertain to only a single institution.

As we point out below, many of the issues discussed in this edition of Supervisory Highlights are issues the CFPB has addressed in other recent editions of Supervisory Highlights or other recent guidance.  Supervised entities should take note of the Bureau’s continued focus on these issues.

  • Auto Loan Servicing. This edition of Supervisory Highlights discusses several violations of the prohibition on unfair, deceptive, or abusive acts or practices (“UDAAPs”) related to auto loan servicing.  Among other things, CFPB examiners identified wrongful repossessions at auto servicers.  According to the Bureau, servicers engaged in unfair acts or practices when they repossessed vehicles after consumers took action that should have prevented the repossession.  Along these lines, the CFPB released a bulletin earlier this year that focused on mitigating the harm of repossession.

In addition, according to the Report, some servicers engaged in a deceptive act or practice in connection with deferrals offered to consumers.  The deferrals at issue were likely to increase consumers’ final payment amounts, and the servicers sent consumers notices stating that their final payment “may be larger.”  In fact, consumers’ final payments often increased dramatically.  The CFPB determined that the “imprecise conditional statements” in the notices the servicers sent to consumers misled consumers about the amount of their final loan payment after the deferral.  In response to these findings, servicers updated their notices and practices.  For example, some servicers included estimated final payment amounts in the deferral notices. Continue Reading Latest CFPB Supervisory Highlights Cites Violations in Auto Servicing, Consumer Reporting, Debt Collection, and Other Areas

The California State Legislature provided commercial lenders with welcome news this week when the California Senate passed Senate Bill 577 (“SB 577”).  If it is signed by the governor, SB 577 will reinstate the de minimis exemption from the California Financing Law (“CFL”) for lenders making a single commercial loan of $5,000 or more in a 12-month period.

The CFL requires a license to make commercial loans of any dollar amount, including unsecured or real estate-secured loans.  Despite its broad scope, the CFL contains a number of exemptions.  Prior to January 1, 2022, the CFL contained a de minimis exemption, which provided that the CFL did not apply to any person who made no more than one commercial loan of $5,000 or more in a 12-month period.  However, the legislation that originally enacted the de minimis exemption contained a “sunset” provision, under which the exemption would be automatically repealed on January 1, 2022 without any further action from the legislature.  Although legislation was introduced in the California legislature’s 2021 session that, if enacted, would have extended the de minimis exemption indefinitely, the legislation ultimately was not enacted in the 2021 legislative session.  As a result, the de minimis exemption was automatically repealed as of January 1, 2022, and lenders making a single commercial loan became subject to the CFL (unless another basis for an exemption existed).  This caused a scramble by some commercial lenders that previously relied on the exemption to make loans in California to apply for a CFL license, which can be an arduous and time-intensive process.

SB 577 contains an urgency provision so, if enacted, it will take effect and restore the de minimis exemption immediately.  Perhaps most importantly, SB 577 does not contain a “sunset” provision, so the de minimis exemption will be indefinitely adopted as part of the CFL, and can only be repealed by a subsequent legislative action.  SB 577 is now with Governor Gavin Newsom for his signature, and we expect that the Governor will ultimately sign the bill into law.

Earlier this month, both Kentucky and Virginia enacted significant legislation related to student loan servicing. Kentucky joined the ever-growing list of states to pass legislation regulating student loan servicing activities while Virginia pared back its existing student loan servicing law.

Kentucky’s new Student Education Loan Servicing, Licensing, and Protection Act of 2022 (“KY Law”) will require student loan servicers doing business in the state to obtain a license. The KY Law also contains certain practice restrictions. For example, the KY Law prohibits student loan servicers from, among other things, misrepresenting or omitting any material information related to the following:

  • Fees or payments due;
  • Terms and conditions of the loan agreement or any modification to such agreement; or
  • Availability of a program or protection specific to military borrowers, older borrowers, borrowers working in public service, or borrowers with disabilities.

Licensees also will be required to file annual reports regarding their business activities; the content of such reports will be dictated by future regulations. The KY Law will go into effect later this summer.

On April 11, 2022, the Governor of Virginia signed identical companion bills House Bill 203 and Senate Bill 496 (the “VA Legislation”). The VA Legislation dramatically reduces the range of companies subject to Virginia’s unusually broad 2020 student loan servicer licensing law (the “VA Law”).

As we previously described, while many states have recently enacted licensing laws and registration requirements for student loan servicers (and, in some cases, private student lenders), Virginia’s law was significantly broader than the laws enacted by other states. In particular, the VA Law applied to a “qualified education loan servicer,” a term that was defined to include an entity that conducted any of the following activities:

  1. (i) Receives any scheduled periodic payments from a qualified education loan borrower or notification of such payments or (ii) applies payments to the qualified education loan borrower’s account pursuant to the terms of the qualified education loan or the contract governing the servicing;
  2. During a period when no payment is required on a qualified education loan, (i) maintains account records for the qualified education loan and (ii) communicates with the qualified education loan borrower regarding the qualified education loan, on behalf of the qualified education loan’s holder; or
  3. Interacts with a qualified education loan borrower, which includes conducting activities to help prevent default on obligations arising from qualified education loans or to facilitate any activity described in clause (i) or (ii) of [section 1 above].

The VA Legislation simply changes the connecting “or” to an “and.” As a result of this small change, a company is not a “qualified education loan servicer” under the VA Law–and therefore is not subject to licensing–unless it performs all three of the activities described above. The VA Legislation also similarly amends the VA Law’s definition of “servicing,” which essentially repeats the definition of “qualified education loan servicer” above.

The most important ramification of this change appears to be that entities that merely “interact” with student loan borrowers will no longer need to obtain a student loan servicer license in the state. The VA Law’s previous language could have been read to extend to student lenders that contact borrowers post-origination or other entities that provide post-origination career-related services to borrowers. Since it is not atypical for private student lenders to check in with borrowers after loan origination and to provide them with career-related resources, a large number of entities that do not engage in core servicing activities (e.g., payment processing) could have fallen within the scope of the original VA Law. As such, the licensing trigger for merely interacting with a student loan borrower positioned Virginia as having one of the broadest student loan servicer laws in the country. The VA Legislation significantly narrows the scope of the VA Law and aligns it more closely with similar licensing laws in other states.

The VA Legislation takes effect July 1, 2022.

On April 11, 2022, Virginia became the second US state to require providers of merchant cash advance (“MCA”) products to obtain a state regulatory license or registration—hot on the heels of Utah. With Governor Glenn Youngkin’s signing House Bill 1027 into law, companies providing “sales-based financing” in Virginia will now be required to provide up-front disclosures about financing terms, follow certain dispute-resolution procedures, and register with the Virginia State Corporation Commission by November 1, 2022.

Read more in Mayer Brown’s Legal Update.

On April 6, 2022, the Federal Housing Finance Agency (“FHFA”) announced that Fannie Mae and Freddie Mac will require servicers to suspend foreclosure activities for up to 60 days if the servicer has been notified that a borrower has applied for assistance from the Homeowner Assistance Fund (“HAF”). HAF was established by the American Rescue Plan Act of 2021, and the program is designed to distribute funds to states, tribes, and territories to help homeowners who have been financially impacted by the pandemic with housing-related costs. For example, among other uses, the funds may be used to reduce mortgage principal or pay arrearages so that homeowners can qualify for affordable loan modifications. The specific HAF programs available to borrowers and the required application procedures depend on the borrowers’ state or territory.

Many COVID-related borrower protections expired in 2021, including federal foreclosure moratoriums and the Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) temporary Regulation X restrictions on foreclosure initiations. However, the CFPB estimated that, as of March 1, 2022, over 700,000 borrowers remain in forbearances and are at risk of foreclosure. According to FHFA Acting Director Sandra L. Thompson, FHFA’s foreclosure suspension for borrowers who applied for HAF “will provide borrowers who need temporary mortgage assistance with additional time to be evaluated for relief through their state’s approved Homeownership Assistance Fund.”

Fannie Mae and Freddie Mac have issued guidance providing that servicers of loans sold to either entity must delay initiating any judicial or non-judicial foreclosure process, moving for a foreclosure judgment or order of sale, or executing a foreclosure sale for up to 60 days if the following criteria are met: Continue Reading FHFA Suspends Foreclosure for Borrowers Applying for HAF Assistance

On March 22, 2022, the US Consumer Financial Protection Bureau (CFPB) released a compliance bulletin on “Unfair and Deceptive Acts or Practices That Impede Consumer Reviews.” The bulletin announced that the CFPB would view practices that discourage or hide consumer reviews as unfair or deceptive practices under Sections 1031 and 1036 of the Consumer Financial Protection Act.  The CFPB did not rely on any of its own precedents but rather imported concepts from the 2016 Consumer Review Fairness Act (which the CFPB does not enforce) and FTC enforcement actions to inform its analysis.  This move raises the stakes for compliance. Director Rohit Chopra is eager to use all of the CFPB’s enforcement tools against companies within the CFPB’s jurisdiction, including the agency’s monetary authority. Companies should review how they handle consumer reviews and make sure that they are not discouraging consumers from leaving negative reviews or engaging in practices that artificially inflate the number of positive reviews.

You can read the full alert here.

Utah has followed California and New York by enacting its own Truth in Lending-like commercial financing disclosure law, but with an additional twist—Utah’s new law has a registration requirement. On March 24, Utah Governor Spencer Cox signed SB 183 into law, with an effective date of January 1, 2023. We discuss how this new law fits into the recent trend of states enacting commercial financing disclosure laws, the companies that are subject to and exempt from the Utah law, the law’s registration obligation, the disclosures that a commercial financer must provide before consummating a transaction, and additional details and takeaways in Mayer Brown’s Legal Update.

In February 2022, a legal opinion issued by the California Department of Financial Protection and Innovation (“DFPI”) concluded that employer-provided earned wage access (“EWA”) transactions are not loans under the California Financing Law and California Deferred Deposit Transaction Law.  The DFPI’s legal opinion stands to provide significant clarity to the EWA industry and should encourage the continued adoption of earned wage access as a solution to employees’ needs for low-cost temporary liquidity.

Before diving into the DFPI legal opinion, we briefly remind readers of the basic structure of EWA programs.  Earned wage access is a service that allows workers to obtain wages that they have earned, but have not yet been paid, prior to the worker’s regularly scheduled payday.  Although the exact structure of each program differs, EWA programs generally fall into two broad categories:

  • Direct To Consumer Models are offered directly to workers, without the employer’s involvement.  Any eligible worker can access EWA from a direct to consumer model, as the worker’s employer offering the service is not a prerequisite.  Because direct to consumer models do not integrate with employers, recoupment of EWA advances is typically effected through a single-use automated clearinghouse transaction from the employee’s personal bank account on the employee’s payday.
  • Employer Integrated Models involve the EWA provider entering into a contract with an employer to offer the service as an employee benefit to the employer’s employees.  An EWA provider using the employer integrated model may integrate with the employer’s payroll and time card systems to receive data about the amount of earned wages that an employee has accrued as of a certain date.  Employer integrated programs typically fund an earned wage advance through the employer’s payroll system and then recoup the advance through a payroll deduction facilitated by the employer on the employee’s next regular payday.

Some EWA providers charge fees for use of the service, which are typically either flat transaction fees or “participation” fees for use of the program.

As an innovative and emerging product, EWA programs present novel financial regulatory issues.  The most significant of these issues is the status of an EWA transaction as a non-credit transaction. Continue Reading California DFPI Affirms Employer-Integrated Earned Wage Access Is Not a Loan

Marketplace lender Opportunity Financial, LLC has gone on the offensive against the California Department of Financial Protection and Innovation to protect its bank partnership program against challenge on a “true lender” theory. On March 7, 2022, OppFi filed suit against the DFPI to ask the state court to declare that FinWise Bank, a Utah-chartered bank, is the true lender of loans facilitated through OppFi’s online platform and funded by the bank. Read more about OppFi’s action and other recent activity on the true lender front at the federal and state level in Mayer Brown’s Legal Update.