Weekly Fintech Focus
- Google and HUD announce work to improve Google’s Advertising Policy.
- Colorado does not extend usury law preemption to non-banks.
- CFPB announces advisory opinion pilot program.
- The CFPB issued an FAQ on credit reporting protections under the CARES Act.
- The OCC is considering a “True Lender” rule clarification.
- New Mexico prohibits writs of garnishment and writs of execution as they pertain to consumer debt.
Google and HUD Announce Work to Improve Google’s Advertising Policy
On June 11, 2020, Google announced updates to its housing, employment, and credit (HEC) advertising policies in an effort to prohibit discrimination. This announcement arrived on the same day as HUD’s announcement of its work with Google to improve Google’s online advertising polices to better align with the requirements of the Fair Housing Act.
Google intends to roll out the necessary updates to effectuate its policy by the end of the year (but is aiming for earlier) in the United States and Canada. Google noted that advertisers will be provided with more information in the coming weeks. This effort involves Google prohibiting HEC ad targeting or exclusion based on gender, age, parental status, marital status, or ZIP code. In the announcement, Google notes that this is in addition to its longstanding policies to prohibit personalization of ads based on other sensitive categories like race, religion, ethnicity, sexual orientation, national origin or disability.
Colorado State Court Does Not Extend Usury Law Preemption to Non-Banks
On June 9, 2020, a Colorado state district court ruled that under Section 27(a) of the Federal Deposit Insurance Act (FDIA), a non-bank assignee of a loan made by a state bank is not permitted to charge the same interest rate charged by the state bank when the loan was made. The ruling comes as part of a case arising from a 2017 enforcement action that alleged that a bank partnership lending arrangement between a non-bank and a New Jersey state-chartered bank resulted in the bank not being the “true lender” for the originated loans. The enforcement action asserted that because the non-bank was the true lender, the Colorado usury laws applied regardless of the FDIA’s preemption of state usury limits on state bank loans.
As background on the statutory landscape, Section 27 of the FDIA is modeled after Section 85 of the National Bank Act (NBA), which creates the same preemption of state usury limits on national bank loans. Accordingly, a state bank can make loans in another state at the interest permitted by that state bank’s charter rather than being limited to the other state’s usury laws.
The court acknowledges that Section 27 of the FDIA, like Section 85 of the NBA, preempts state usury laws as they are applied to banks, but then holds that this privilege is limited to banks and does not extend “the privilege of interest exportation to non-banks.” In making this holding, the bank references the persuasive holding in Madden v. Midland Funding from the Second Circuit.
The Colorado court does not reference the Office of the Comptroller of the Currency’s final rule codifying its interpretation that the assignee of a loan may charge the same interest rate as the originating national bank despite the court’s decision coming nearly two weeks after the final rule was published. Notably, as the FDIC’s rule regarding the valid-when-made doctrine is not finalized, the court explains that it is not bound by these preliminary steps at this time when the statute is clear.
The case before the Colorado District Court for the City and County of Denver is Martha Fulford, Administrator, Uniform Consumer Credit Code v. Marlette Funding, LLC et al.
CFPB Announces Advisory Opinion Pilot Program
The CFPB announced that it is beginning the trial phase of an advisory opinion program that will issue advisory opinions to financial services companies to provide clarity on applicable regulations, and it also issued a proposed procedural rule for the full advisory opinion program. Covered entities and service providers subject to the CFPB’s supervisory or enforcement authority may submit requests to the CFPB for provisional advisory opinions on the agency’s interpretation of covered regulations. During the pilot program, the CFPB will also be seeking input from stakeholders on how to roll out a full advisory opinion program. In the proposed procedural rule for a full advisory opinion program, the CFPB will open up the pilot program to additional requestors, such as outside counsel or trade associations. Comments for the full program must be submitted by August 21, 2020.
The advisory opinions issued under the pilot program will be interpretive rules under the Administrative Procedures Act, and unless stated otherwise, will be applicable to the requesting company as well as similarly situated parties to the extent their activities conform to the CFPB’s summary of facts in the advisory opinion. The advisory opinion will state whether there is a statutory safe harbor through compliance with the advisory opinion.
Not all issues will be appropriate for the advisory opinion process. The CFPB provides that appropriate issues will be those that have been noted during a prior CFPB examination as ones that would benefit from additional regulatory clarity, are of substantive importance in which clarification would provide significant benefit, and/or concern an ambiguity that the CFPB has not previously addressed through an interpretation or other source.
CFPB Issues an FAQ on Credit Reporting Protections under the CARES Act
The Consumer Financial Protection Bureau (CFPB) previously issued a statement that informed lenders that they must comply with the credit reporting requirements of the CARES Act. To help ensure that consumers receive the credit reporting protections thereunder, the CFPB issued an FAQ that addresses the credit reporting requirements in addition to other considerations.
The FAQ also clarify that reporting consumers as affected by a natural or declared disaster is not a substitute for complying with other CARES Act reporting requirements.
OCC Considering True Lender Rule Clarification
Brian Brooks, acting head of the Office of the Comptroller of the Currency (OCC), indicated in a discussion panel that the OCC may soon propose a true lender rule to supplement its recent final rule to clarify the legal uncertainty created by the Madden decision.
While the recent final rule confirmed that the assignee of a loan may charge the same interest that a national bank or federal savings association can under federal law, it did not specify which entity is the true lender. During the discussion panel, Mr. Brooks noted the proposal would include procedures for identifying who the true lender is, among other things.
New Mexico Prohibits Writs of Garnishment and Writs of Execution of Consumer Debt
The New Mexico Supreme Court issued an order prohibiting writs of garnishment or writs of execution as they pertain to consumer debt collection cases. Notably, however, the order does not affect such writs issued prior to June 8, 2020; nor does it affect other rules pertaining to consumer debt collection cases.
This order does not apply to domestic support obligations (e.g., support and spousal maintenance) and will remain in effect until amended or withdrawn.