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
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…
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,…
The New York Department of Financial Services (NYDFS) has issued “pre-proposed” rules under New York’s commercial financing disclosure law that was enacted at the end of 2020. The pre-proposed rules are 45 pages long and were posted on the NYDFS website on September 21. Comments on the pre-proposed rules are due by October 1. There will be a longer comment period once a proposed rule is published in the State Register. The NYDFS aims to finalize the rules before the law takes effect on January 1, 2022.
The pre-proposed rules give the state’s commercial financing disclosure law, colloquially known as the “NY TILA,” the formal name of the “Commercial Finance Disclosure Law (CFDL).” The pre-proposed rules also define terms and provide detailed requirements for the content and formatting of the CFDL-required disclosures. The proposed definitions borrow heavily from, but do not exactly mirror, those under the California Department of Financial Protection and Innovation’s (DPFI) proposed rules to implement its own commercial financing disclosure law. The lack of uniformity between the two states’ regulations will complicate compliance for commercial financers subject to both laws. Where the NYDFS rules borrow most substantially from the California rules, the NYDFS tends to draw from the prior version of those rules, before the DFPI’s second round of modifications issued August 9, 2021. This raises the question of whether the NYDFS will incorporate California’s latest modifications when the NYDFS issues the next version of its proposed rules.
Continue Reading NYDFS Issues Pre-Proposed Rules to Implement New Commercial Financing Disclosure Law
On August 6, 2021, the U.S. Department of Education announced that it would extend the moratorium on federal student loan payments until January 31, 2022. According to the Department’s press release, this will be the final moratorium extension.
As we discussed back in 2020, the CARES Act provided temporary financial relief to federal student loan…
As many of us look forward to our summer vacations, the NMLS also has plans to take time off this summer. Due to system maintenance, beginning Wednesday, July 21 at 8:00 p.m. ET, the NMLS and NMLS Consumer Access will be unavailable for four full days, July 22 through July 25, with an anticipated return to operations on Monday July 26 at 7:00 a.m. ET. This maintenance period is significantly longer than previous maintenance periods, which typically occur over a weekend. The system will be completely inaccessible during this time, meaning that all Company and Individual users will be unable to log into their record to make any filings or amendments to the record, or to review any status updates or licensing deficiencies. Regulators also will be unable to access the NMLS or NMLS Consumer Access during this maintenance period. The NMLS Call Center will remain open during the system maintenance.
Below, we offer a few suggestions for users to ensure you and/or your Company are ready for the upcoming NMLS maintenance period:…
On March 23, 2021, Illinois Governor JB Pritzker signed into law Senate Bill 1792, enacting the Predatory Loan Prevention Act (PLPA) and capping interest at an “all-in” 36% APR (similar to the Military Lending Act’s MAPR) for a variety of consumer financing, effective immediately. The PLPA uses an expansive definition of interest, applies to…
As expected, New York has broadened the reach of its new commercial financing disclosure law less than two months after its enactment.
S.B. 5470 imposed a range of Truth in Lending-like disclosure requirements on a variety of commercial financing transactions. On February 16, 2021, New York Governor Andrew Cuomo signed S.B. 898 into law, clarifying…
On February 4, 2021, the California Department of Financial Protection and Innovation (DFPI or the Department) issued an invitation for stakeholder comments on potential rules that will govern the operations and authority of the Department. This invitation is the first opportunity for industry participants to weigh in on the functions of the DFPI—a newly reconstituted regulator whose oversight will significantly affect many financial services companies operating in California.
The DFPI (formerly known as the Department of Business Oversight) was established by the California Consumer Financial Protection Law (CCFPL), which was enacted last September. In addition to renaming and reorganizing one of California’s financial regulators, the CCFPL grants the DFPI authority very similar to that granted to the CFPB under the Dodd-Frank Act, including expanded regulatory and enforcement powers. And while many licensees are exempt from these new authorities—e.g., mortgage lenders licensed under the state’s Real Estate Law—uncertainty around their scope and implementation should lead all potentially relevant market participants to monitor and consider participating in the rulemaking process.
Continue Reading California DFPI Invites Comments on Rules Governing its Operations and Authority