We recently discussed the efforts of the Alternative Reference Rates Committee (ARRC) to prepare for the upcoming discontinuance of LIBOR as an index rate for residential mortgage and consumer loans. Our alert examined ARRC’s recommendations regarding an appropriate substitute rate (the Secured Overnight Financing Rate, or SOFR) and ARRC’s recommended changes to implement SOFR. We
On February 22, the Third Circuit sidestepped the Supreme Court’s 2017 holding in Henson v. Santander Consumer USA Inc. and found that a purchaser of defaulted debt qualified as a debt collector under the Fair Debt Collection Practices Act.
In Barbato v. Greystone Alliance, the Third Circuit considered whether an entity that purchased charged off receivables and outsourced the actual collection activity was subject to the FDCPA. In analyzing the issue, the court explained that the FDCPA’s definition of the term debt collector has two prongs, and if an entity satisfies either of them, it is a debt collector subject to the Act. Under the “principal purpose” prong, a debt collector includes any person who “uses any instrumentality of interstate commerce or the mails in any business the principal purpose of is the collection of any debts.” Under the “regularly collects” prong, a debt collector includes any person who “regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”
The defendant in Barbato, Crown Asset Management, purchased defaulted debt and outsourced the collection function to a third party. After being sued for allegedly violating the FDCPA, Crown argued (among other things) that under the Supreme Court’s decision in Henson, the Act did not apply to it because Crown owned the debts and thus did not regularly seek to collect debts owed to another. In response to this argument, the Third Circuit explained that while Henson clarified the scope of the “regularly collects” definition, the Supreme Court “went out of its way in Henson to say that it was not opining on whether debt buyers could also qualify as debt collectors under [the principal purpose prong].”…
The Illinois Senate Financial Institutions Committee recently approved a measure, Senate Bill 2865, that seeks to license and regulate business-purpose lenders. While the bill may be delayed as the bill’s sponsor, Senator Jacqueline Collins, seeks feedback from affected industries, SB 2865 has the potential to significantly affect both the primary and secondary small business loan market in the state.
SB 2865 states that its purpose is to protect small businesses from abusive lending practices and help those borrowers avoid defaults. Most significantly, it would impose a licensing obligation on lending activities related to closed- or open-end business-purpose loans or merchant cash advances of $250,000 or less, regardless of the interest rate. The bill appears to require licensing for persons engaged in making or taking assignment of those loans, but it also could be read to require licensing of persons arranging, investing in, or acting as the agent of a person making the loans. The bill exempts certain banks, savings banks, and credit unions, and also exempts certain nonprofits and SBA business assistance organizations from the licensing provisions.
In addition to licensing, SB 2865 would, if enacted, impose significant compliance obligations on small business lenders in Illinois…
On March 3, 2016, the Consumer Financial Protection Bureau (“CFPB”) promulgated a rule (“the Rule”) establishing a process for the public to request additional areas to be recognized as “rural” areas for purposes of federal consumer financial laws. The designation of an area as “rural” provides relief for creditors in those areas from certain requirements under the Truth in Lending Act (“TILA”) and its implementing Regulation Z, as explained below. Under the Rule, a person may submit an application to the CFPB for recognition of a new area as “rural” for those purposes. The Rule thus has the potential to open new avenues for small rural creditors to extend certain mortgage loans to their communities.…