As expected, and with few changes, the Consumer Financial Protection Bureau adopted its proposed rule barring financial companies regulated by the agency from including class action waivers in arbitration agreements. Arbitration clauses in new contracts offering a consumer financial product or service will need to include specified language indicating that arbitration cannot be used to stop the consumer from pursuing a class action. Continue Reading
On Oct. 19, 2016, the Ninth Circuit held that merely enforcing a security interest is not “debt collection” under the federal Fair Debt Collection Practices Act (“FDCPA”). In so holding, the Ninth Circuit disagreed with earlier decisions by the Fourth and Sixth Circuits, creating a split that might eventually be resolved by the U.S. Supreme Court.
On August 31, 2016, in a ground breaking decision, the United States District Court in Los Angeles ruled that CashCall, Inc. violated the Consumer Financial Protection Act in connection with efforts to collect on certain loans that would have been held void under state law had CashCall originated the loans in question in the states where the borrowers resided. According to the pleadings, CashCall had worked closely with the originator of the loans in question, assisting with the logistics of originating the loans and purchased all of the loans shortly after loan origination. The court concluded that CashCall was the “true lender” and was responsible for the issuance of the loans – rejecting CashCall’s contention that another firm (based on a Native American reservation) was the originator of the loans. While the full impact of this decision is not yet known, it is critical reading for anyone engaged in the loan origination space. A copy of the ruling is attached hereto.
The Consumer Financial Protection Bureau’s most recent supervisory highlights publication featured issues relating to the Fair Credit Reporting Act, loan originator compensation and in-person debt collection that should be on mortgage lenders’ and debt collectors’ radar.
Where do marketplace lenders and secondary loan market participants find themselves on the issue of preemption of state usury laws after the June 27 denial of the petition for a writ of certiorari in Madden v. Midland by the U.S. Supreme Court?
In Madden v. Midland, the US Court of Appeals for the Second Circuit refused to follow the “valid-when-made” rule when considering the scope of federal preemption of state usury laws under the National Bank Act. The court held that the NBA did not bar the application of state usury laws to a national bank’s assignee. In considering the applicability of the National Bank Act to a loan in the hands of a non-bank assignee, the Second Circuit considered a number of cases upholding preemption of state usury laws under the National Bank Act but invoked a seemingly new rule for applying section 85 of the National Bank Act (permitting a national bank to charge interest at the rate permitted by its home state). The Second Circuit concluded that preemption is only applicable where the application of state law to the action in question would significantly interfere with a national bank’s ability to exercise its power under the National Bank Act. The court reasoned further that where a national bank retained a “substantial interest” in the loan, the application of the state usury law would conflict with the bank’s power authorized by the National Bank Act.
An act passed by Congress last year makes changes to IRS Form 1098 (Mortgage Interest Statement) starting in tax year 2016 (reported commencing in calendar year 2017). Internal Revenue Code Section 6050H(b)(2)(D) requires that a Form 1098 include “the amount of outstanding principal on the mortgage as of the beginning of the calendar year” as well as the date of origination of the mortgage loan. Earlier this month, the IRS released a revised Form 1098 which repeats the language quoted in the previous sentence without further elaboration. A question had been raised as to whether the amount of outstanding principal as of January 1 needed to be updated to reflect a monthly payment received after January 1 but which is credited as of January 1. The Credit Union National Association is reporting that the IRS has clarified that any payments received after January 1 (such as during the grace period for receipt of monthly payments) are not to be reflected in the outstanding balance as of January 1, nor is a payment that is received prior to January 1 but rejected for insufficient funds after January 1 to be added back to the outstanding balance as of January 1.
Mortgage lenders must make sure that their systems are updated to provide the revised Form 1098 starting next year.
Many consumer-facing businesses have learned to identify high-risk Prop 65 targets: soft, flexible plastics; faux and colored leathers; and any kind of brass or metal that may contain lead or other heavy metals. But businesses need to take action to avoid Prop 65 liability based on a new culprit: bisphenol-A (BPA) that may be lurking in your cash register receipts and other thermal papers. Continue Reading
Google announced on May 11 that effective on July 13, 2016 it will ban all payday loan advertisements from its site. Google was responding to concerns raised by consumer advocates who argued that the lending practice exploits the poor and vulnerable by offering them immediate cash that must be repaid at exorbitant interest rates. Google joins Facebook in prohibiting such advertisements. The decision marks the first time that Google has announced a global ban on advertisements for a broad category of financial products.
In a news conference today President Obama addressed rules and proposed regulations announced Thursday intended to help the U.S. fight tax evasion and other crimes connected to anonymous offshore companies and accounts. The announcements come after a month of intense review by the administration following the first release of the so-called Panama Papers, millions of documents stolen or leaked from Panamanian law firm Mossack, Fonseca. The papers have revealed a who’s who of international politicians, business leaders, sports figures and celebrities involved with financial transactions accomplished through anonymous shell corporations.
Mortgage servicers are heavily regulated. Usually, the worst that can be said is that the laws and regulations are many, complex, and onerous. Sometimes, however, they are contradictory. Continue Reading