New California lending rate limit (AB 539) impacts some B2B loans

On October 10, 2019, the Fair Access to Credit Act (AB 539) was signed into law by California Governor Gavin Newsom and becomes effective on January 1, 2020. As detailed in a previous publication, the law applies only to loans made under the California Financing Law (CFL) and imposes requirements related to interest rate caps, borrower education, credit reporting and maximum loan repayment periods.

It is important for commercial (B2B) CFL licensed lenders to note that under AB 539, commercial loans with a principal amount of less than $5,000 are considered consumer loans under the CFL, regardless of the intended purpose of the loan.

Under Section 22203 of the CFL, “consumer loans” are defined as loans that the borrower intends to use primarily for personal, family or household purposes. 

Under Section 22502 of the CFL, “commercial loans” are defined loans with a principal amount of $5,000 or more, and the intended use is for other than personal, family or household purposes.

However, the definitions of consumer loans and commercial loans are not mutually exclusive, and under Section 22204 of the CFL, loans for commercial purposes with a principal amount of less than $5,000 are considered consumer loans under the CFL.  Such loans are, therefore, subject to provisions of the CFL applicable to consumer loans, even if the intended use is for commercial purposes. Accordingly, the provisions of AB 539 similarly apply to commercial loans made by CFL licensed lenders in an amount less than $5,000. 

Bricker attorneys have extensive experience with commercial lending regulations in California and other jurisdictions. For more information, please contact the author or any member of Bricker’s Banking & Financial Services group.

Consumer Lending and Services, Legal Developments

California limits lending rates for consumer loans

The Fair Access to Credit Act (AB 539) was signed into law by California Governor Gavin Newsom on October 10, 2019. The act requires California Finance Law (CFL) licensed lenders making consumer loans from at least $2,500 to less than $10,000 to comply with the following:

  • Lenders shall not charge a rate or service charges in excess of 36 percent plus the Federal Funds Rate.
  • Before providing loans, lenders must offer, at no cost to the borrower, an approved credit education class, which must include the following information:
    • The value of establishing a credit score
    • How to establish a credit score
    • Factors that impact a credit score
    • How to check one’s credit score
    • How to obtain a free copy of one’s credit report
    • How to dispute an error in one’s credit report
  • Lenders must not provide loans with terms less than 12 months, and such loans may not exceed the maximums under the act based on the principal amount of the loans. (Maximum terms range from 24 months and 15 days to 60 months and 15 days.)
  • Lenders must report each borrower’s payment performance to at least one nationwide consumer reporting agency. Newly licensed lenders or lenders that don’t currently report borrower performance have until July 1, 2020, to meet this requirement, provided they report the performance of borrowers dating back to January 1, 2020.

The act makes sweeping changes for consumer lenders providing applicable loans to California consumers through their CFL licenses, decreasing rates that may be charged while increasing compliance costs and obligations.

Consumer Lending and Services, Legal Developments

Ohio's new requirements for junior lienholders and mortgage servicers

It has been a little over six months since Ohio Revised Code § 1349.72 went into effect—a law that requires holders of junior liens on residential real property to first send a written notice containing specific information prior to attempting to collect any part of a debt in default. Due to the vague terms contained in the law, however, there is quite a bit of uncertainty surrounding it. Unfortunately, none of that uncertainty has been resolved since its enactment, as the law does not appear to have been cited by a single Ohio court decision. 

Residential mortgage lending and servicing businesses should consider whether they have procedures in place that comply with this new law. If you have any questions, please contact the authors or a member of Bricker's banking& financial services team.

Consumer Lending and Services, Legal Developments

Nevada joins other states to enhance privacy protections for consumers

The trend of states increasing privacy protections for consumers continues to gain momentum throughout the country. Nevada is the most recent example and enacted new legislation to enhance privacy protections for its residents. This amendment to existing online privacy and data protection laws, Senate Bill 220 (S.B. 220), will be effective on October 1, 2019. Read more >>

Compliance Management, State Regulatory

FTC takes action and fines loan servicer: How to avoid being the subject of the next case

Loan servicers, beware! The Federal Trade Commission (FTC) recently issued a large fine to a loan servicer, based on Unfair or Deceptive Acts or Practices (UDAP) standards. On April 15, 2019, the FTC and Avant, LLC, an online consumer lender and loan servicing company, entered into a settlement and stipulated order to resolve a lawsuit that alleged Avant violated federal consumer protection laws. The FTC asserted that Avant’s loan servicing practices constituted unfair and deceptive acts and practices under Section 5 of the FTC Act (15 U.S.C. §§ 41-58, as amended).

The FTC has the authority to regulate businesses engaging in interstate commerce, including online lenders that fund consumers or small businesses, and, among other areas, the FTC has oversight and enforcement obligations concerning unfair and deceptive acts and practices under the FTC Act. Unlike UDAAP under the Dodd-Frank Act, which applies only to consumer transactions, the FTC Act applies to both consumer and commercial lenders and loan servicers, as well as all other businesses operating in interstate commerce. Read more >>

Consumer Lending and Services, Legal Developments

Supreme Court opens door (a bit) to argument that in rem foreclosures not covered by FDCPA

On March 20, 2019 in Obduskey v. McCarthy & Holthus LLP, a unanimous U.S. Supreme Court held that the primary definition of a “debt collector” under the Fair Debt Collection Practices Act (FDCPA) does not apply to an entity that engages in no more than security-interest enforcement. As a result, most of the debt-collector-related prohibitions of the FDCPA (besides the limited prohibitions of Section 1692f(6)) do not apply to such an entity.  

Read More>>

Consumer Lending and Services, Legal Developments

Ohio goes digital: The Notary Public Modernization Act

In December 2018, now former Governor Kasich signed into law S.B. 263, also known as the Notary Public Modernization Act. The act overhauls Ohio’s notary laws and will allow documents to be notarized online through audio-video conferencing.

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Legal Developments, State Regulatory

Qualified mortgages: The uncertain future of the GSE patch

Late last month, President Trump’s administration released a wide-sweeping reform and reorganization plan for the federal government. Included in this plan was a proposal to reform two of the largest government sponsored enterprises (GSEs) – Fannie Mae and Freddie Mac – in an effort to lessen government presence in the mortgage market. In anticipation of this possible change, the Consumer Financial Protection Bureau (CFPB) issued a request for information (RFI) from interested parties in order to gain industry input. Read More >>

 

Legal Developments

Short-term CFPB director not short on changes to bureau

Interim director of the Consumer Financial Protection Bureau (CFPB) Mick Mulvaney has not been shy about changing the bureau’s organization and structure during his short tenure on the job. Since he was named acting director in November 2017, Mulvaney has made adjustments within the department aimed at reducing oversight and redundancies, including his recent reorganization of two major offices within the bureau. What those actions will ultimately mean for individual buyers remains to be seen, but there are some potentially significant changes for two large groups of consumers that are worth keeping an eye on over the coming months. Read More >> 

 

Legal Developments

A breath of fresh air: Web Content Accessibility Guidelines updated

In an increasingly online world, financial service providers are tasked with ensuring that their websites can be accessed by all people—regardless of cognitive or physical capabilities. The risks of failure include defense of fair lending claims, given that access to credit (through the internet) should not be denied based on disability. Until the DOJ issues a statement to the contrary, companies avoiding liability and unwanted litigation should aim to fall within the W3C’s guidelines as closely as possible.

To the relief of many, this goal may be more clearly attainable in the wake of the most recent update on June 5, 2018. The W3C issued WCAG 2.1, an updated set of guidelines that builds upon previously established rules and bolsters the organization’s internet accessibility efforts.

Read More >>

Compliance Management, Legal Developments
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