On December 19, 2025, New York Governor Hochul signed the Fostering Affordability and Integrity Through Reasonable (“FAIR”) Business Practices Act. The FAIR Business Practices Act adds prohibitions against “unfair” and “abusive” acts or practices to the state attorney general’s arsenal, which otherwise expressly addressed only such acts or practices that are “deceptive.”
The state Attorney…
While federal regulatory agencies retreat from enforcing disparate impact discrimination, at least one state agency has stepped forward. Massachusetts Attorney General Andrea Joy Campbell announced on July 10, 2025 a settlement with a student loan company, resolving allegations that the company’s artificial intelligence (“AI”) underwriting models resulted in unlawful disparate impact based on race and immigration status.
The disparate impact theory of discrimination in the lending context has been controversial. It has been 10 years since the Supreme Court held in Inclusive Communities that disparate impact is available under the Fair Housing Act if a plaintiff points to a policy or policies of the defendant that caused the disparity. In the fair lending context, then, disparate impact applies to mortgage loans. However, for other types of consumer credit – like auto loans or student loans – a plaintiff or government enforcer claiming discrimination would need to rely on the Equal Credit Opportunity Act (“ECOA”). While ECOA prohibits discrimination against an applicant with respect to any aspect of a credit transaction, there has been much debate over whether it applies to discrimination in the form of disparate impact. The federal government for years relied heavily on ECOA to bring credit discrimination actions. The Biden Administration pursued a vigorous redlining initiative against mortgage lenders. The government used the vast amount of data obtained under the Home Mortgage Disclosure Act (“HMDA”) and compared the activities of various lenders within a geographic area to determine whether a lender was significantly lagging its peers in making loans to certain protected groups. The government then looked to the lender’s branch locations, advertising strategies, the racial/ethnic make-up of its loan officers, and other factors to assert that the lender had discouraged loan applicants from protected classes. Through that redlining initiative, the government settled dozens of cases, resulting in well over $100 million in payments.
HMDA data provides extensive, if imperfect, demographic data on mortgage lending activities and has been key to building claims of lending discrimination, particularly disparate impact. However, that level of data is not generally available for other types of lending, like student loans. Without such data, the Office of the Massachusetts Attorney General (“OAG”) in this case reviewed the lender’s algorithmic rules, its use of judgmental discretion in the loan approval process, and internal communications, which the Attorney General described as exhibiting bias.
Disparate Impact Based on Race, National Origin
In that review, the OAG looked back to the scoring model the lender used prior to 2017, which relied in part on a Cohort Default Rate – the average rate of loan defaults associated with specific higher education institutions. The OAG asserted that use of that factor in its underwriting model resulted in disparate impact in approval rates and loan terms, disfavoring Black and Hispanic applicants in violation of ECOA and the state’s prohibition against unfair or deceptive acts or practices (“UDAP”). The public settlement order did not provide the level of statistical disparities. In addition, until 2023, the OAG asserted that the lender also included immigration status in its algorithm, knocking out applicants who lacked a green card. That factor “created a risk of a disparate outcome against applicants on the basis of national origin,” and as such violated ECOA and UDAP according to the OAG. The settlement order prohibits the lender from using the Cohort Default Rate or the knock-out rule for applicants without a green card (although it appears the lender had discontinued those considerations years ago).Continue Reading Massachusetts AG Settles Fair Lending Action Based Upon AI Underwriting Model
On June 30, California Governor Newsom signed Assembly Bill No. 130 (“AB130” or the “Bill”). Effective immediately, the Bill added a new section to the California Civil Code to codify that certain actions constitute unlawful practices when taken by a “mortgage servicer” in connection with a subordinate mortgage. The Bill also adds a number of certification and disclosure requirements that mortgage servicers must adhere to in connection with nonjudicial foreclosures of subordinate mortgage loans.
At the outset, it is important to note that the Bill defines the term “mortgage servicer” broadly to include the current mortgage servicer and any prior mortgage servicers. Thus, the Bills’ requirements—including certifications that a mortgage servicer is required to record in connection with certain foreclosures—cover the activities of both the current servicer of a subordinate mortgage and any prior servicer of that mortgage.
Unlawful Practices for Subordinate Mortgages
Under the newly created Section 2924.13, a “subordinate mortgage” is defined to include a security instrument in residential real property that was, at the time it was recorded, subordinate to another security interest encumbering the same residential real property. The new section does not distinguish between loans for a consumer or business purpose. Pursuant to the new section, the following conduct constitutes an unlawful practice in connection with a subordinate mortgage:Continue Reading California Enacts Servicing Requirements for Subordinate Residential Mortgages
Maryland’s secondary mortgage market has been in turmoil since a disruptive 2024 court decision held that a purchaser of mortgage loans inherits the original lender’s obligations—including the obligation to obtain a Maryland Mortgage Lender license. Secondary market investors that acquire residential mortgage loans through a passive trust can breathe a sigh of relief now that…
The New York legislature has introduced no fewer than three separate bills in 2025 to license and regulate the business activities of providers of buy-now-pay-later (“BNPL”) products. The first quarter of the year has seen the introduction of Senate Bill 4606, Assembly Bill 6757, and lengthy budget bill Assembly Bill 3008, each of which would enact a similar, but not identical, “Buy-Now-Pay-Later Act.” If enacted into law, each of the three bills would require certain providers of BNPL credit to obtain a license from the New York Department of Financial Services (“NYDFS”).
BNPL products have experienced increasing popularity in recent years as an alternative to credit cards for small-dollar retail transactions. While there are differences between available BNPL programs, the most common BNPL model is an extension of credit repayable in four or fewer installments that does not carry any interest, origination fee, or other finance charges—although such products frequently charge other incidental charges such as late fees or insufficient funds charges. Providers historically have argued that products structured in this manner generally do not trigger cost-of-credit disclosure (and limited substantive) requirements under the federal Truth in Lending Act (“TILA”). That view was challenged recently with the May 2024 publication of a Consumer Financial Protection Bureau (“CFPB”) interpretive rule asserting that traditional four-installment BNPL loans with no finance charge may be subject to certain TILA requirements pertaining to credit cards if they are offered through a “digital user account” access model, but the CFPB has since indicated that it likely will rescind such guidance. Research conducted by the CFPB indicated that BNPL products are more likely to be used by consumers with higher levels of debt, lower incomes, and less liquidity than some competing products, which has been part of the impetus for regulatory action under a consumer protection rationale. Particularly in light of the CFPB’s rollback of its BNPL Interpretive Rule, states, like New York, may see a greater need to take a more active role in regulating the product.Continue Reading New York Proposes to License Buy-Now-Pay-Later Lenders
Mayer Brown has published a new edition of Licensing Link, a periodic publication that will keep you informed on hot topics and new developments in state licensing laws, and provide practice tips and primers on important issues related to state licensing across the spectrum of asset classes and financial services activities.
In this issue, we…
There were positive developments last week in connection with the recently announced licensing requirements for assignees of residential mortgage loans and installment loans in Maryland — a proposed legislative fix, an extended enforcement deadline, and a clarifying exception from the requirement.
As we discussed in our Legal Update last month, the Maryland Office of Financial Regulation (OFR) asserted that assignees of residential mortgage loans — including certain “passive trusts” that acquire or obtain assignments of residential mortgage loans in Maryland — must become licensed in Maryland prior to April 10, 2025, unless the assignee is expressly exempt under Maryland law. The guidance reflected the OFR’s understanding of an April 2024 decision by the Appellate Court of Maryland in Estate of Brown v. Ward that any assignee of any residential mortgage loan is required to obtain a Mortgage Lender license, and an Installment Loan license is required if the mortgage loans are made subject to the Credit Grantor provisions, regardless of whether the loans are open- or closed-end extensions of credit.
That guidance has caused significant turmoil in the Maryland residential mortgage markets, with significant practical concerns about requiring passive trusts to obtain a license and with certain industry participants suspending the purchase of Maryland mortgage loans.
To address these concerns, the OFR worked with industry participants to develop proposed legislation, the Maryland Secondary Market Stability Act of 2025 — two identical bills, Senate Bill 1026 and House Bill 1516, introduced on February 17, 2025.Continue Reading Update on Maryland Licensing for Loan Assignees
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
Mayer Brown has published a new edition of Licensing Link, a periodic publication that will keep you informed on hot topics and new developments in state licensing laws, and provide practice tips and primers on important issues related to state licensing across the spectrum of asset classes and financial services activities.
In this issue, we…
