Long before eMortgages, electronic signatures, and mobile apps hit the secured lending scene, Lord Nottingham proposed that the English Parliament pass An Act for Prevention of Frauds and Perjuries in 1677 to prevent nonexistent agreements from being “proved” through false testimony. That statute and its progeny remain an important resource in today’s financial services industry. All states have adopted a version of the statute of frauds and many states have enacted statutes of frauds specifically designed to provide broad protection for financial institutions. If used effectively, these “super” statutes of frauds can quickly dispose of claims and defenses related to credit agreements, allowing lenders to recover collateral, enforce notes and guarantees, and reduce the expense of litigation. These statutes should be one of the first tools lenders reach for when defending claims for breach of an unsigned credit agreement or prosecuting loan enforcement actions where claims and defenses related to credit agreements are asserted.
Amid the uncertainty over the future of the CFPB, another continuing question is whether state consumer protection authorities will act to fill gaps left by the CFPB’s inaction. State attorneys general have tools available to pursue financial services practices that they believe harm consumers, and some have announced intentions to do so. But to date, the states have not initiated a flurry of suits regarding consumer financial protection.
Under the leadership of purported Acting Director Mick Mulvaney, the CFPB has curtailed investigative and enforcement activities, which states could take as a cue to step in. In fact, Mulvaney seemingly exhorted states to do so, as in a speech to the National Association of Attorneys General where he said that the CFPB would look to states for “a lot more leadership when it comes to enforcement.” Continue Reading Cutback of CFPB Activities Invites State Authorities to Act — But Will They?
It has been almost easy to forget that the PHH v. CFPB case started life as an appeal of an enforcement action taken by the Consumer Financial Protection Bureau (CFPB) for purported violations of the Real Estate Settlement Procedures Act (RESPA). Technical RESPA issues quickly took a back seat in public discourse to the juicier issue in the case—whether the structure of the CFPB itself was unconstitutional. (Among the factors heightening the drama was the fact that, post-election, the new leadership at the Department of Justice reversed the Obama-era course in the litigation, directing its lawyers to argue against the CFPB and contend that the CFPB was unconstitutional.)
In the latest turn in the case, in a January 31 opinion, the US Court of Appeals for the DC Circuit brought the RESPA issues back to the fore — ironically, in an opinion that does not substantively discuss the RESPA issues. Continue Reading Latest PHH v. CFPB Ruling Brings RESPA and CFPB Enforcement Approaches Back in Focus
2018 has a tough act to follow, after a 2017 full of momentous developments—starting with a new Administration and wrapping up with a showdown over the right to serve as Acting Director of the Consumer Financial Protection Bureau (CFPB) (a fight that continues as of this writing, as discussed below).
But 2018 is unlikely to be a quiet year. In addition to developments in the CFPB leadership battle and other litigation, the year is expected to bring developments such as effective and compliance dates for major regulations on data protection, Bank Secrecy Act/anti-money-laundering (BSA/AML), mortgage servicing, and other topics, and could bring changes in supervisory focus at multiple federal agencies. Continue Reading Fasten Your Seatbelts: Are You Ready for Another Eventful Year?
The Consumer Financial Protection Bureau (CFPB)’s long-anticipated rulemaking on small-dollar lending took a surprising turn. The version of the CFPB’s small-dollar regulation proposed in 2016 would have covered a wide array of small consumer loans, and was further accompanied by a request for information on additional small-dollar products and practices not covered by the proposal, all of which implied that the CFPB had a far-reaching agenda for regulating small-dollar consumer credit and, as a first salvo, would fire off a sweepingly broad small-dollar regulation. But that is not what has happened so far. Rather, the final rule, announced on October 5, is narrowly drawn and centers on more limited, specific types of short-term payday loans. Continue Reading What Does the CFPB’s Payday Rule Mean for the Future of Small-Dollar Lending?
On May 10, 2017, the Consumer Financial Protection Bureau (CFPB) announced steps toward issuing regulations to impose data reporting requirements on the small business lending industry, a rulemaking required under the Dodd-Frank Act of 2010. To help it draft a proposed rule, the CFPB requested public feedback through a Request for Information (RFI) Regarding the Small Business Lending Market. At the same time, the CFPB released a white paper, Key Dimensions of the Small Business Lending Landscape, discussing the data currently available regarding small business lending. Continue Reading CFPB Asks for Input on Small Business Lending Data Collection; Agency Sees Small Business As Fair Lending Priority
For nonbank providers of consumer financial services, one of the most challenging parts of doing business is the need to comply with the laws of multiple states. Entities like money transmitters and consumer lenders typically must obtain licenses in the states in which they do business, and comply with an array of varying state laws. And for entities that are online or mobile in nature, the “states in which they do business” can mean all fifty states—plus the District of Columbia and U.S. territories. This has been the source of many operational challenges and frustrations for fintech companies and startups in recent years. Continue Reading OCC’s Fintech Charter Proposal: The End of State Licensing As We Know It? Comments Due April 14
As long as nonbank small-dollar lending faces additional regulation and regulatory scrutiny, as we have previously discussed, the role of small-dollar loans made by traditional depository institutions should not be ignored.
To date, bank and credit union loans make up a tiny fraction of the small-dollar market, but that could change. This is a particular possibility if the nonbank portion of the market is negatively affected – through, for instance, lenders exiting the market or the enactment of laws further restricting the types of loans nonbanks can make – or if federal regulators incentivize their supervised institutions to make such loans, whether through positive Community Reinvestment Act (CRA) consideration or assurances that fair lending and other supervisory expectations can be satisfied. Continue Reading Competition for Nonbank Small-Dollar Lending?
As discussed in our previous post, the Consumer Financial Protection Bureau (CFPB) has proposed a regulation that would impose numerous requirements regarding small-dollar lending. Unquestionably, that rule would be significant because it would establish a nationwide, federal standard for covered small-dollar loans, and lenders could not circumvent the rule’s requirements by choosing which state or states to operate in. But a CFPB rule also would not displace the role of the states. State regulators would continue to be able to license and supervise small-dollar lenders, and would be able to maintain their own laws, including those more protective of consumers and not inconsistent with the CFPB rule. State authorities would also continue to investigate and prosecute small-dollar lenders for unlicensed activity and other activity alleged to violate state law. Continue Reading The Enduring Role of the States and Cities in Small-Dollar Lending
As political developments affecting the federal regulatory landscape continue, one key area that consumer financial services practitioners will want to monitor is the future of nonbank small-dollar lending regulation and enforcement. The Consumer Financial Protection Bureau (CFPB) has altered the small-dollar landscape in recent years, taking what was chiefly a state-regulated activity and making it a federal priority. The CFPB has taken enforcement actions against small-dollar lenders and proposed the first federal regulation expressly covering small-dollar lending. Continue Reading The CFPB and Small-Dollar Lending: Where Do We Go from Here?