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Kris D. Kully

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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

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 Department of Labor issued a final rule raising the thresholds applicable to an employer’s obligation to pay overtime. The rule sets new levels applicable to the so-called “executive, administrative, and professional” (“EAP”) exemption from overtime requirements and for qualifying as a “highly compensated employee.” The initial updates will become effective on July 1, 2024.

On March 29, 2024, the United States District Court for the Northern District of Texas issued a preliminary injunction prohibiting enforcement of the new Community Reinvestment Act (“CRA”) regulations against the plaintiffs in the case.

The CRA, passed in 1977, generally requires insured depository institutions to participate in investment, lending, and service activities that help…

The New York Department of Financial Services finalized guidance on how banks and mortgage institutions should manage climate-related financial and operational risks. The agency’s guidance creates extensive obligations for New York institutions, particularly mortgage lenders and servicers for which those risk management expectations may be new. Also, the NYDFS emphasizes that those institutions must still…

In the CFPB’s new Supervisory Highlights, the agency concludes that paying individual mortgage loan originators differently for loan products that are brokered out to another lender, as compared to loans that are originated in-house, is a violation of Regulation Z’s Loan Originator Compensation Rule.

The CFPB’s Highlights describe a lender that makes certain mortgage…

In explaining its view of the pleading standards in a disparate treatment discrimination case, the Consumer Financial Protection Bureau (“CFPB”) shed light on its interpretation of the Truth in Lending Act’s (“TILA’s”) appraisal independence standards, providing that a lender is not required to rely on a biased appraisal.

The underlying case relates to a claim that an appraiser undervalued a home because of the homeowners’ race, and that the lender knew of the undervaluation. In mid-March, the CFPB and the Department of Justice filed a Statement of Interest in the case, addressing the applicability of nondiscrimination principles in the property valuation context. In doing so, the agencies also addressed the federal requirements for appraiser independence.

TILA and its Regulation Z prohibit lenders or other covered persons from coercing, instructing, or inducing an appraiser to cause the appraised value to be based on any factor other than the appraiser’s independent judgment. They also prohibit lenders from suborning any mischaracterization of a property’s appraised value or materially altering a property valuation. A lender that reasonably believes an appraiser has materially violated ethical or professional requirements must report the appraiser to the appropriate state agency. In addition, to comply with Regulation Z’s conflict-of-interest requirements, mortgage lenders generally ensure that the appraiser reports to a person who is not part of the lenders’ loan production function, and that no person in that function is involved in selecting the appraiser. Agencies and investors may impose additional requirements or prohibitions addressing appraisal independence.

The regulations expressly permit a lender to ask the appraiser to consider additional information, provide further detail or explanation, or correct errors. However, lenders must walk a fine line – while they may ask for additional information, explanations, or corrections, they are understandably careful in questioning an appraiser’s conclusions and are limited in their ability to obtain a second appraisal. (For instance, Fannie Mae generally prohibits its lenders from obtaining a second appraisal without a reasonable and documented basis for believing that the first appraisal is flawed.)Continue Reading CFPB Addresses the Fine Lines of Appraisal Independence

The CFPB marketed its latest set of supervisory highlights as the “Junk Fees Special Edition.” The splashy headline is consistent with the agency’s recent focus on fees that it asserts are hidden from the competitive process. In speeches, press releases, and blog posts (and now a single proposed rule), the CFPB has stressed its growing concern with “junk” fees. The CFPB even created a section of its web site solely devoted to press releases on “junk” fees.

Gleaning compliance guidance from Supervisory Highlights is not always straightforward, as they do not provide full details. However, in this Special Edition, the CFPB notes that it has characterized the following types of fees and practices as junk:

Deposit Accounts

  • Overdraft Fees – specifically, those charged when the consumer had a sufficient balance when the financial institution authorized the transaction, but not at the time of settlement.
  • Multiple Non-Sufficient Funds Fees for the Same Transaction.

Auto/Title Financing

  • Late Fees that Exceed the Credit Contract or After Acceleration/Repossession.
  • Estimated Repossession Fees that Greatly Exceed Average Costs – even if the excess was refunded.
  • Payment Processing Fees – specifically, those that exceed processing costs, when free payment options are only available for checks or ACH transfers.
  • Fees to Retrieve Personal Property from Repossessed Vehicles – the CFPB said such fees were “unexpected” and unfair.
  • Premature Repossession and Related Fees – charging late fees and repossessing vehicles before title loan payments became due.

Mortgage Loan ServicingContinue Reading CFPB Junk Fees Special Edition

Today, in another legal blow to the CFPB, a federal court in Illinois dismissed the Bureau’s redlining lawsuit against Townstone Financial (“Townstone”) and its owner.

The Bureau made waves back in 2020 when it filed the lawsuit, which was the first public redlining action brought by the Bureau against a non-bank mortgage lender. While the…