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

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.  

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Consumer Lending and Services, Legal Developments

Mortgage lenders: The “black hole” has closed

In astronomy, there can be no escape from a black hole. In the world of residential mortgage lending, the CFPB has charted a new course, finally creating an escape from one of TILA/RESPA’s most impracticable rules. On April 26, 2018, the CFPB finalized amendments to “TRID”, its “Know Before You Owe” mortgage disclosure rule.  

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Consumer Lending and Services

PHH’s hidden gem

The long-awaited en banc decision in PHH Corp., v. CFPB has finally been issued. The Court of Appeals for the D.C. Circuit upheld the constitutionality of the Consumer Financial Protection Bureau (CFPB) and reversed a prior finding that its structure is unlawful. This case has been discussed for years, with good reason.What is truly notable is the underlying issue that was appealed in the first place:  the CFPB’s new interpretation of RESPA regarding payments for business referrals. 

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Consumer Lending and Services, Federal Regulatory, Legal Developments

Federal district court sanctions CFPB for violations of discovery orders

A federal court in Georgia recently imposed sanctions on the Consumer Financial Protection Bureau (CFPB) after finding that the regulator engaged in a pattern of conduct that warranted substantial penalties. While the bureau is usually the accuser of wrongful conduct, it had some explaining to do in CFPB v. Universal Debt Solutions. Read More >>

Consumer Lending and Services, Federal Regulatory, Legal Developments

Stein to speak at 2017 MBA Regulatory Compliance Conference

Banking and financial services attorney David Stein is a featured speaker at this year’s Mortgage Bankers Association (MBA) Regulatory Compliance Conference, which takes place September 17-19 in Washington, D.C. Addressing one of the most significant issues facing banks and lenders, he will participate in a panel discussion on loan originator compensation, Truth in Lending Act (TILA) rules and the Fair Labor Standards Act (FLSA). Stein is a member of the MBA Legal Committee and a thought leader in this area. He regularly works with banks and lenders to proactively plan compensation strategies that comply with TILA and FLSA. At the conference, he will share his knowledge and experience with industry leaders, attorneys and compliance personnel. To learn more about the MBA Regulatory Compliance Conference, visit the MBA website

Compliance Management, Consumer Lending and Services

Debt buyers beware: SCOTUS will decide if the FDCPA applies to you

On Friday, January 13, 2017, the U.S. Supreme Court granted certiorari in Henson v. Santander Consumer USA, Inc. This case raises the question whether a debt buyer is a “creditor” or a “debt collector” under the Fair Debt Collection Practices Act (FDCPA). The answer to this question, it turns out, is far from clear since debt buyers fit plausibly into either category. Read more >>

Consumer Lending and Services, Federal Regulatory