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On June 23, in Soaring Pine v. Park St Grp, the Michigan Supreme Court held that under certain circumstances, a lender cannot avoid liability for charging illegally high interest rates by including a usury savings clause in loan documents that would reduce the applicable interest rate to the highest non-usurious interest rate permitted by applicable law. The court remanded a private equity firm’s breach-of-contract suit against a house-flipping company back to the trial court to determine whether the lender broke the law.Continue Reading Michigan Supreme Court Limits Applicability of Usury Savings Clauses

On January 11, 2023, a Texas federal court dismissed a class action lawsuit against a leading financial technology company alleging it violated Texas usury laws by charging interest on loans it made through a partnership with a state-chartered bank at rates above the maximum allowed under Texas law. The plaintiff alleged that the partnership amounted to a “rent-a-bank” scheme designed to evade state law such that financial technology company, rather than its bank partner, was the “true lender” on the loans. In dismissing the lawsuit, the district court entered an order accepting and adopting the magistrate judge’s report and recommendation, finding the arbitration clause in the plaintiff’s note and disclosure statement (the “Note”) enforceable and recommended that the complaint be dismissed with prejudice. The district court also compelled arbitration of the plaintiffs’ claims.Continue Reading FinTech Prevails in Texas “True Lender” Challenge

Recently, the CFPB filed an amicus brief in the U.S. Court of Appeals for the Fourth Circuit arguing that the court should reinstate a borrower’s putative class action claim against a national bank. The CFPB argued that the district court erred by improperly narrowing a provision in Regulation Z of the Truth in Lending Act (TILA) that prohibits lenders from withdrawing from deposit accounts to cover debts caused by credit card plans.Continue Reading CFPB Files Amicus Brief in TILA Suit, Impacts How Banks Collect on HELOCs

Recently, the United States Court of Appeals for the 4th Circuit held that a mortgage servicer’s failure to provide a required disclosure informing borrowers of their three-day right to rescind the loan under the Truth in Lending Act (TILA) does not relieve borrowers of their obligation to return disbursed loan proceeds upon an effective rescission. The ruling reversed a West Virginia District Court’s ruling against the mortgage servicer in a purported class action.
Continue Reading 4th Circuit: Borrower Must Return Loan Proceeds After Rescission Despite Lender’s Failure to Meet TILA Requirements

The U.S. District Court for the Northern District of Illinois recently used Section 19 of the FTC Act to impose a $5 million restitution award after the original restitution award under Section 13(b) was vacated by the Seventh Circuit based on its ruling that monetary relief was not available under Section 13(b).
Continue Reading Court Agrees with FTC: Can Seek Relief under Section 19

On July 1, the Federal Housing Finance Agency (FHFA) released a Policy Statement on its commitment to comprehensive fair lending oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (collectively, “regulated entities”).  The FHFA addressed its position on:  (i) monitoring and information gathering; (ii) supervisory examinations; and (iii) administrative enforcement related to the Equal Credit Opportunity Act, the Fair Housing Act, and the Federal Housing Enterprises Financial Safety and Soundness Act.  The FHFA added that the statement operates as a “foundation for future interpretations by the agency and its regulated entities.”  Comments on the policy statement are due 60 days after publication in the Federal Register.
Continue Reading FHFA Releases Policy Statement On Fair Lending