On February 6, the Consumer Financial Protection Bureau (CFPB) issued a notice of proposed rulemaking (NPRM) that would rescind portions of the agency’s 2017 final rule regulating payday loans, vehicle title loans, and certain high-cost installment loans (Rule). Among other things, the Rule requires lenders, including banks, to make certain underwriting determinations before making a variety of loans, chiefly small-dollar consumer loans. We previously discussed such requirements in detail in LenderLaw Watch.
Under the NPRM, the CFPB is proposing to rescind the Rule’s provisions that: (a) say it is an unfair and abusive practice to make a covered loan without reasonably determining the borrower’s ability to repay the loan; (b) specify underwriting requirements for evaluating a borrower’s ability to repay; (c) exempt some loans from the underwriting requirements; and (d) supply related definitions, reporting, and recordkeeping requirements.
According to the NPRM, the CFPB has initially determined that the evidence underpinning the Rule’s underwriting provisions was not sufficiently robust and reliable and that, despite the CFPB’s efforts to increase credit access and competition in credit markets, the Rule’s underwriting provisions would restrict such access and reduce such competition.
On February 11, Joseph Otting, Comptroller of the Currency, issued a statement applauding the NPRM, calling the CFPB’s action “an important and courageous step that will allow banks and other responsible lenders to again help consumers meet their short-term small-dollar needs.”
The CFPB will be accepting comments on the NPRM for 90 days after its publication in the Federal Register.
On February 6, in a separate but related notice of proposed rulemaking, the CFPB also proposed extending the August 19, 2019, compliance date for the Rule’s underwriting provisions to November 19, 2020, so that lenders will not have to comply with the provisions that would be rescinded. The CFPB will be accepting comments regarding the extended compliance date for 30 days after publication of the related notice in the Federal Register.
On February 8, the Commissioner of the California Department of Business Oversight began soliciting comments from stakeholders to clarify certain sections of the Money Transmitter Act (Act), in advance of rulemaking surrounding Agent of Payee regulation. The Act prohibits the provision of money transmission services in California, unless “the person is licensed or exempt from licensure under this division.” The Act further defines an exempt transaction as: “[a] transaction in which the recipient of the money or other monetary value is an agent of the payee pursuant to a preexisting written contract and delivery of the money or other monetary value to the agent satisfies the payor’s obligation to the payee.” While legislative history clearly indicates that the exemptions section was designed to exempt marketplace platforms such as Amazon or Airbnb from the licensure requirements, substantial uncertainty surrounds several of the terms of art within the section, specifically “goods or services,” “receipt of goods,” and “receipt of services.” The Department of Business Oversight is inviting comment on how these concepts may be appropriately defined. Comments may be submitted, either by electronic mail or U.S. mail, until April 9, 2019.
On February 7, the Municipal Securities Rulemaking Board (MSRB) clarified existing guidance on MSRB Rule G-18, which requires dealers to seek the most favorable terms reasonably available for retail customer transactions in municipal securities (i.e., best execution). The MSRB noted that some market participants have voiced concerns that the practice of simultaneously soliciting bids on multiple alternative trading systems (ATSs) or via multiple broker’s brokers in an attempt to achieve best execution may have harmful effects on dealers, investors, and the municipal market. In addition, the MSRB noted that such simultaneous solicitation of bids is not prohibited by Rule G-18, and that it may be consistent with a dealer’s best-execution obligation, as well as beneficial to customers. In light of the fact that a single ATS or broker’s broker can provide exposure to multiple dealers and markets, the MSRB amended existing guidance to further clarify that a dealer is not required to subscribe to every ATS or to solicit bids on multiple fixed-income ATSs or via multiple broker’s brokers to meet its best-execution obligation.
Enforcement & Litigation
The rapid and sweeping changes many in the consumer finance industry expected in 2018 following President Donald Trump’s appointment of Mick Mulvaney as the Acting Director of the CFPB in 2017 did not occur as anticipated. Instead, the CFPB moved slowly, filed fewer public enforcement actions but surprisingly did not abandon certain existing ones, throttled back the pace of investigatory activities, and met its statutory mandate by issuing multiple requests for information about how the CFPB’s processes and outcomes could be improved. Analyzing the key developments from last year will allow financial services companies looking ahead to 2019 to anticipate and prepare for changes in the law, new regulatory interpretations, and shifting legislative and enforcement priorities.
To help our clients stay competitive in this evolving legal landscape, we are proud to present our Consumer Finance Year In Review. In this year-end review, we synthesize our prior coverage of 2018’s most significant developments and actions from both our LenderLaw Watch and Consumer Finance Enforcement Watch blogs, and use our detailed industry and regulatory knowledge to offer our predictions on what the industry might expect in 2019 in the mortgage, credit card, student lending, credit reporting, auto lending, debt collection, Telephone Consumer Protection Act (TCPA), payday lending, FinTech, and appellate areas. To review the online Year In Review, click here.
On January 16, the Southern District of California dismissed a TCPA claim against Lyft because the plaintiff failed to support the automatic telephone dialing system (ATDS) element of his claim. Like many similar TCPA plaintiffs, the plaintiff in Bodie v. Lyft, No. 3:16-cv-02558-L-NLS (S.D. Cal.), sought to state a TCPA claim by simply asserting that Lyft used an ATDS to send him text messages without providing factual allegations to support his claim. The Southern District of California found this was insufficient and dismissed the case. Given the prevalence of TCPA complaints that pay short shrift to the ATDS element, defendants should consider whether a similar strategy could pay dividends. Read the LenderLaw Watch blog post.
Goodwin's Investment Management Practice is hosting its 11th Annual Good Run in conjunction with the Investment Company Institute’s 2019 Mutual Funds & Investment Management Conference. In recognition of the participants, Goodwin will make a donation to Expect Miracles, a leading advocate in the fight against cancer within the financial services industry. To register for the run/walk, click here.