Lending

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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 December 18, the Arizona Attorney General issued an opinion on earned wage access (EWA), which determined that fully non-recourse EWA products do not constitute consumer loans subject to consumer loan regulations, and correspondingly, that providers of non-recourse EWA products would not be considered consumer lenders subject to licensure under Arizona law. The opinion found that an EWA product could be identified as fully non-recourse when the provider:…

Continue Reading AZ Attorney General Concludes Non-Recourse EWA Not a Loan

On June 29, a Florida court issued a final judgment against a Miami-based payday lender and its CEO resolving allegations that the defendants misappropriated investor funds. According to the complaint, the business fraudulently raised upwards of $66 million through the sale of promissory notes to more than 500 Venezuelan-American investors who were told that the company would use their funds to finance payday loans through the offer and sale of “safe and secured” promissory notes. Investors were promised returns of up to 120%, yet it was alleged that the company did not generate revenue to cover its principal and interest payments due to investors.
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Continue Reading Payday Lender Ordered to Pay $39 Million in Misappropriated Funds Suit

On May 4, the Connecticut Department of Banking issued a temporary cease and desist order directing a peer-to-peer lending platform that connected borrowers with third-party lenders to cease its lending-related activities on grounds that it was operating as an unlicensed small loan company.  The FinTech company was also cited for operating as an unlicensed consumer collection agency, and for engaging in deceptive acts or practices under consumer protection laws. …
Continue Reading Connecticut Stops FinTech from Unlicensed Lending Activities

On February 8, the U.S. District Court for the Northern District of California ruled against three states – California, Illinois, and New York – challenging the OCC’s rule on the “valid when made” doctrine.  In 2020, the OCC issued a final rule codifying the “valid when made” principle by clarifying that the determination of whether interest on a loan is permissible is determined when the loan is made and that a bank’s transfer of a loan to a third party does not impact the validity or enforceability of that interest. …
Continue Reading OCC Prevails in Challenge to “Valid When Made” Rule

On February 8, the District of Columbia attorney general announced a settlement with a FinTech company for alleged violations of the District of Columbia Consumer Protection Procedures Act (CPPA) by marketing high-costs loans carrying interest rates exceeding D.C.’s interest rate caps. The complaint, filed in June 2020, alleged that the company offered two loan products to D.C. residents with APRs ranging from 99 to 251 percent, exceeding D.C.’s rate cap limit of  24 percent.
Continue Reading DC OAG Reaches $4 Million Settlement with FinTech Over Claims of Predatory Lending

Maine’s Governor, Janet Mills, recently signed S.P. 205/L.D. 522, which amended the Consumer Credit Code to protect consumers from predatory and fraudulent lending practices.  In particular, the amendments include an anti-evasion provision under which purported bank agents or service providers are deemed “lenders” for the purposes of statute.  The amendment contains the following key provisions:

  • Covered entities “may not engage in any device, subterfuge or pretense to evade the requirements of this Article, including, but not limited to…making, offering, assisting, or arranging a debtor to obtain a loan with a greater rate of interest, consideration or charge than is permitted by this Article through any method.”
  • Loans that violate these provisions are “void and uncollectible as to any principal, fee, interest or charge.”
  • A person qualifies as a lender if it:
    • holds, acquires or maintains, directly or indirectly, the predominant economic interest in the loan;
    • markets, brokers, arranges or facilitates the loan and holds the right, requirement or first right of refusal to purchase the loan or a receivable or interest in the loan; or
    • the totality of the circumstances indicate that the person is the lender and the transaction is structured to evade the requirements of this Article.
  • The circumstances that would weigh in favor of an entity being deemed the lender include, without limitation, when the entity:
    • indemnifies, insures or protects an exempt entity for any costs or risks related to the loan
    • predominately designs, controls or operates the loan program, or
    • purports to act as an agent or service provider for an exempt entity while acting directly as a lender in other states.
  • Lenders who violate these provisions may not furnish information concerning a debt associated with the violation to a consumer reporting agency, nor may it refer the associated debt to a debt collector.

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Continue Reading Maine Enacts “True Lender” Legislation, Amends Consumer Credit Code to Include Anti-Evasion Provisions

When President Biden signed the bill on June 17 which made Juneteenth (June 19) a federal legal holiday immediately, it impacted certain Regulation Z timing requirements related to rescission of closed-end mortgage loans and the TILA-RESPA Integrated Disclosures (TRID), particularly with respect to transactions that either (i) closed on or before June 17, 2021 but for which consumers’ rescission periods had not yet expired or (ii) were close to the planned closing date on June 17, 2021 and subject to certain disclosure timing requirements of the TRID provisions.  Since the CFPB did not publish immediate guidance, mortgage lenders were forced to make educated guesses as to how to treat Friday, June 18 and Saturday, June 19, particularly with respect to measurement periods that had already commenced before or on the date the new law became effective.  On August 5 the CFPB published an interpretive rule on how to deal with these issues, and the Bureau consistently reached a result which permitted mortgage lenders to treat June 19 as either a business day or a federal holiday for the purposes of these provisions, as set forth immediately below in more detail.
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Continue Reading CFPB Reaches Correct Resolution On Juneteenth Disclosure Issues