Small Business Lending

On October 17, the Bureau of Consumer Financial Protection (“BCFP” or “Bureau”) issued its Fall  2018 regulatory agenda.  Notable highlights include:

  • Payday Lending Rule Amendments. In January 2018, the Bureau announced that it would engage in rulemaking to reconsider its Payday Lending Rule released in October 2017.  According to the Bureau’s Fall 2018 agenda, the Bureau expects to issue a notice of proposed rulemaking by January 2019 that will address both the merits and the compliance date (currently August 2019) of the rule.
  • Debt Collection Rule Coming. The Bureau expects to issue a notice of proposed rulemaking addressing debt collection-related communication practices and consumer disclosures by March 2019.  The Bureau explained that debt collection remains a top source of the complaints it receives and both industry and consumer groups have encouraged the Bureau to modernize Fair Debt Collection Practices Act (“FDCPA”) requirements through rulemaking.  The Bureau did not specify whether its proposed rulemaking would be limited to third-party collectors subject to the FDCPA, but its reference to FDCPA-requirements suggests that is likely to be the case.
  • Small Business Lending Data Collection Rule Delayed. The Dodd-Frank Act amended the Equal Credit Opportunity Act (“ECOA”) to require financial institutions to submit certain information relating to credit applications made by women-owned, minority-owned, and small businesses to the Bureau and gave the Bureau the authority to require financial institutions to submit additional data.  In May 2017, the Bureau issued a Request for Information seeking comment on small business lending data collection.  While the BCFP’s Spring 2018 agenda listed this item as in the pre-rule stage, the Bureau has now delayed its work on the rule and reclassified it as a long-term action.  The Bureau noted that it “intends to continue certain market monitoring and research activities to facilitate resumption of the rulemaking.”
  • HMDA Data Disclosure Rule. The Bureau expects to issue guidance later this year to govern public disclosure of Home Mortgage Disclosure Act (“HMDA”) data for 2018.  The Bureau also announced that it has decided to engage in notice-and-comment rulemaking to govern public disclosure of HMDA data in future years.
  • Assessment of Prior Rules – Remittances, Mortgage Servicing, QM; TRID up next. The Dodd-Frank Act requires the Bureau to conduct an assessment of each significant rule adopted by the Bureau under Federal consumer financial law within five years after the effective date of the rule.  In accordance with this requirement, the Bureau announced that it expects to complete its assessments of the Remittance Rule, the 2013 RESPA Mortgage Servicing Rule, and the Ability-to-Repay/Qualified Mortgage Rule by January 2019.  At that time, it will begin its assessment of the TILA-RESPA Integrated Disclosure Rule (TRID).
  • Abusiveness Rule? Consistent with recent statements by Acting Director Mick Mulvaney that while unfairness and deception are well-established in the law, abusiveness is not, the Bureau stated that it is considering whether to clarify the meaning of abusiveness through rulemaking.  The Bureau under former Director Richard Cordray rejected defining abusiveness through rulemaking (although the payday rule relied, in part, on the Bureau’s abusiveness authority), preferring instead to bring abusiveness claims in enforcement proceedings to establish the contours of the prohibition.  Time will tell if the Bureau will follow through on this.

Continue Reading BCFP’s Fall 2018 Regulatory Agenda

The Summer 2018 edition of Supervisory Highlights –the first one the BCFP has issued under Mick Mulvaney’s leadership – is much the same as previous editions. In it, the Bureau describes recent supervisory observations in various industries, and summarizes recent public enforcement actions as well as supervision program developments.

One aspect of the report that is notably different, however, is the introductory language. In prior regular editions of Supervisory Highlights, the report’s introduction would emphasize the corrective action that the Bureau had required of supervised institutions. It would highlight the amount of total restitution to consumers and the number of consumers affected by supervisory activities, and would note the millions of dollars imposed in civil money penalties.

This new version eliminates all of that discussion from the introduction. Instead, the Bureau has added language emphasizing that “institutions are subject only to the requirements of relevant laws and regulations” and that the purpose of disseminating these Supervisory Highlights is to “help institutions better understand how the Bureau examines institutions” to help industry limit risks to consumers.

The first sentence of the report, which in previous iterations used to say that the Bureau is “committed to a consumer financial marketplace that is fair, transparent, and competitive, and that works for all consumers” now says the Bureau is committed to a marketplace that is “free, innovative, competitive, and transparent, where the rights of all parties are protected by the rule of law, and where consumers are free to choose the products and services that best fit their individual needs.”

Ultimately, time will tell whether this is simply rhetoric or if the Bureau’s supervisory and enforcement posture will be dramatically different from that under Mulvaney’s predecessor. Continue Reading BCFP’s Latest Supervisory Highlights

A complaint filed March 23 by the bankruptcy trustee for Lam Cloud Management, LLC in the United States Bankruptcy Court for the District of New Jersey challenges two small business financing models: (i) merchant cash advances (“MCAs”); and (ii) small business loans originated under bank partnerships.  While disposition of the complaint will take time, and all that is available for now are bare allegations, the complaint is another recent challenge involving usury and bank partner programs and warrants attention from entities involved in small business financing and lending. Continue Reading NJ Bankruptcy Case Takes Aim at Small Business Financing — Merchant Cash Advances and Bank Partnerships

Nearly five years after announcing it would “expeditiously” implement provisions of the Dodd-Frank Act concerning data collection on small business lending, the Consumer Financial Protection Bureau (CFPB) finally seems to be taking action. Not only is it moving to promulgate the required regulations, but it has placed fair lending to the small business community among its top 10 priorities. Read more about the scope of the CFPB’s authority over the small business and business-purpose lending industry and steps that the industry may take to manage compliance risk in Mayer Brown’s Legal Update, available here.

 

Some segments of the marketplace lending business model (a subset of the growing FinTech industry sometimes referred to as peer-to-peer lending), might become subject to additional regulation if the federal and state regulatory agencies take to heart the results of a recent Treasury  Department report. Continue Reading Treasury Department Issues Marketplace Lending Report, Outlines Possible Regulatory Path

*Mrs. Schoenfeld is not admitted in the District of Columbia. She is practicing under the supervision of firm principals

On April 29, 2016, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) issued its fourth Fair Lending Report, which reviews the activities of the Office of Fair Lending and Equal Opportunity for the 2015 calendar year.  Last year, the CFPB’s fair lending supervisory and public enforcement actions led to $108 million in restitution to consumers and other monetary payments.  The Bureau referred eight matters to the Department of Justice (“DOJ”), and DOJ declined to independently investigate two of these matters.

The Report focuses on the following fair lending highlights: Continue Reading The CFPB Issues its 2015 Fair Lending Report

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 Continue Reading Illinois Looks to Join States Licensing Small Business Lenders