On October 19, 2021, the Consumer Financial Protection Bureau (“CFPB”) issued its first enforcement action under newly-confirmed Director Rohit Chopra, taking aim at a company that the CFPB found to misuse its position of market dominance. The nature of the CFPB’s claims and the manner in which they were presented is telling of the CFPB’s likely approach to enforcement under Chopra. The agency issued a consent order against JPay, LLC, which the order describes as a company that contracts with federal, state and local departments of corrections (“DOCs”) around the country to provide various products and services, including debit cards provided to individuals upon their release from incarceration. The debit cards may contain the consumer’s own funds from commissary or other accounts and may also contain Gate Money—funds provided by the government to the individual to help ease the transition upon release from incarceration. The consent order focuses on the company’s practices related to such debit cards. Continue Reading Chopra Makes a Statement About Markets (Both Literally and Figuratively)

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 September 7, 2021, the CFPB announced that it had entered into a consent order with an education finance nonprofit (“nonprofit”) in connection with the nonprofit’s offering of income share agreements (“ISAs”). In the consent order, the CFPB asserted that ISAs are extensions of credit covered by the Consumer Financial Protection Act and the Truth in Lending Act (“TILA”) as well as TILA’s requirements with respect to “private education loans.” Because the CFPB asserts in the consent order that it views the nonprofit’s ISAs as credit, the CFPB takes the position that they are also subject to numerous other federal consumer financial protection laws that impose requirements and restrictions on student loan products. This consent order has significant implications for those in the ISA market, as it indicates how the CFPB views re-characterization for ISAs and similar products. Continue Reading CFPB Finds that Income Share Agreements are Credit Products

Today the Bureau finally released its long-awaited proposed rulemaking on small business lending data collection. Section 1071 of the Dodd-Frank Act mandated that the CFPB collect data about small business lending to facilitate enforcement of fair lending laws.

After ten years of fits and starts on this topic, the Bureau ultimately was pressured by a lawsuit filed against it to make forward progress on a proposal. As we previously reported, a court settlement last year mandated a timeline for the CFPB to take certain steps to initiate a Section 1071 small business lending data collection rulemaking. Among other steps, the settlement required the CFPB to convene a Small Business Advocacy Review panel (“Panel”) by October 15, 2020. The Panel met and provided feedback on the CFPB’s proposals under consideration and released its report in December.

The 918-page proposed rule issued today is the culmination of years of research and CFPB engagement with stakeholders. Continue Reading CFPB Issues Proposed Small Business Lending Rule

Nearly four years after the Consumer Financial Protection Bureau (“CFPB”) first promulgated its rule regulating payday loans, a federal district court in Texas upheld the payment provisions of the rule against various constitutional and other challenges. The court, which had previously stayed the rule’s original compliance date, also provided that the provisions would become effective in 286 days—on June 13, 2022. Continue Reading CFPB Payday Rule Upheld

On August 10, 2021, the CFPB’s Office of Supervision Policy published a report titled Mortgage Servicing COVID-19 Pandemic Response Metrics: Observations from Data Reported by Sixteen Servicers (“Servicing Metrics Report”).  Although the Servicing Metrics Report doesn’t allege any compliance deficiencies in the servicers’ performance, the topics addressed in the report and the CFPB’s accompanying press release indicate areas of focus for the CFPB, and servicers should take note.

Continue Reading CFPB Report on Servicers’ COVID-19 Response Signals Enforcement Priorities

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 borrowers. That relief included (1) a pause on federal student loan payments, (2) the suspension of interest accrual during the moratorium, and (3) a freeze on involuntary student loan collections. These measures were initially set to expire on September 30, 2020, but subsequent extensions by Presidents Trump and Biden ultimately pushed back the expiration date to September 30, 2021. By the time the moratorium expires, federal student loan borrowers will have received CARES Act relief for roughly 22 months.

In its press release, the Department indicated that it will begin notifying federal student loan borrowers about this final extension in the coming days and that it will release information about how to plan for payment restart as the end of the pause approaches. It remains to be seen what, if any, support the Department will provide to federal student loan servicers to ensure that they do not run into issues while attempting to restart payment activity for millions of borrowers at the same time.

Many states established separate voluntary partnership programs with private student loan holders and loan servicers to provide financial relief to borrowers impacted by the pandemic. These voluntary programs generally provided private student loan borrowers with interest-accruing forbearance up to a certain number of months. They are not affected by the most recent extension of the federal student loan moratorium.

The set of federal agencies tasked with determining which residential mortgage loans may be exempt from credit risk retention in securitizations are continuing to think about it. Late last month, the Securities and Exchange Commission, Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal Reserve Board, Federal Housing Finance Agency (“FHFA”), and the Department of Housing and Urban Development (together, the “Agencies”) announced that they hope to have more answers by the end of this year. It seems likely those Agencies will continue to define those exempt mortgage loans (called “qualified residential mortgages,” or “QRMs”) in a manner that is fully aligned with the “qualified mortgage” (“QM”) definition of the Consumer Financial Protection Bureau (“CFPB”) (which interestingly is not among the Agencies tasked with the QRM/risk retention rules). If it were that easy, though, the Agencies probably would have done that by now. Of course, the CFPB’s QM definition has been a moving target itself. Continue Reading Agencies Still Pondering QRM

The Dodd-Frank Act provides the Consumer Financial Protection Bureau (“CFPB”) with authority to obtain a broad range of legal and equitable remedies, as well as civil money penalties. Our recent Legal Update discusses a recent opinion from the 7th Circuit in CFPB v. Consumer First Legal Group, LLC, which provides critical judicial guideposts for how and when these remedies apply. This decision should play an important role in future CFPB enforcement actions. The Legal Update can be found here.

The California Department of Financial Protection and Innovation (“DFPI” or the “Department”) will have no shortage of applications to process before year end.  Last week, the DFPI reminded industry participants that, beginning on September 1, 2021, it will make available through the Nationwide Multistate Licensing System (“NMLS”) the application needed to apply for a license under the Debt Collection Licensing Act (“DCLA”).  Passed in September of 2020, the DCLA (SB 908) requires any person engaged in the business of debt collection, which includes debt buyers, to apply for a license on or before Friday, December 31, 2021, in order to continue to operate as a debt collector in California when the DCLA goes into effect on January 1, 2022.  Failure to submit an application by the December 31st application deadline will preclude a debt collector from lawfully operating as a debt collector until the issuance of a license (Fin. Code §§ 100000.5, 100001(a)).  For more details,  the DFPI has published a series of Frequently Asked Questions (FAQs) at:  Debt Collectors: Frequently Asked Questions | The Department of Financial Protection and Innovation (ca.gov).

Also, nearly two years after publishing a Notice or Proposed Rulemaking that will require all California Financing Law (“CFL”) licenses to be issued through the NMLS, and one day prior to an extended NMLS maintenance period (covered in our prior blog post), the DFPI announced that existing  CFL licensees are now eligible to begin transitioning their licenses to the NMLS.   Oddly, the announcement was made two days prior to the July 22nd end date for the comment period relating to the most recently proposed modifications to the proposed rules (see  Fifth Notice of Modifications to Proposed Regulations).  Upon final approval of  the regulations, it is expected that all CFL licenses will be issued through the NMLS by December 31, 2021.  This change may not be welcome for entities that do not presently have an NMLS record because establishing a Company Record through the NMLS to transition an existing CFL license onto the system is a separate process that takes time and effort.

Given the typical processing times (usually 90 days) for CFL license applications and the upcoming NMLS renewal period that begins on November 1, 2021, CFL licensees that do not have an existing NMLS Company Record should consider starting the transition process sooner rather than later.  Continue Reading California Licensing Update