Alston & Bird Consumer Finance Blog

State Law

CFPB Updates Financial Institution Guidance on Elder Financial Exploitation

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A&B ABstract:

In July 2019, the Consumer Financial Protection Bureau (“CFPB”) issued an update to its 2016 Advisory and Recommendations for Financial Institutions on Preventing and Responding to Elder Financial Exploitation (“Update”).  The Update focuses on recent developments in state laws related to elder financial exploitation (“EFE”) and makes a number of recommendations to financial institutions on how to best handle EFE.

Developments in State Law

The Update highlighted four principal sets of state law developments.

Reporting Obligations:

As of April 2019, 26 states and the District of Columbia require financial institutions or certain financial professionals to report suspected EFE.

Transaction Holds:

Since 2016, a substantial number of states have enacted legislation permitting delayed disbursements of funds or transaction holds when a financial institution believes that financial exploitation may occur. Generally, when a financial institution chooses to hold a transaction, it must report the suspected financial exploitation.  Most states’ statutes apply only to broker/dealers, financial advisers, or others dealing in securities.  Several states, however, also extend their statutes to depository institutions such as banks and credit unions.

Record Production:

Since 2016, Kentucky, Tennessee, Texas, and Utah have enacted new laws regarding the production of records to investigatory agencies. Kentucky and Texas (along with Illinois Minnesota, and Wisconsin) now require that financial institutions provide records related to suspected EFE to Adult Protective Services (“APS”) and law enforcement, either as part of a report or referral or upon request pursuant to an investigation.  Tennessee and Utah (along with North Carolina) now require that financial institutions provide records related to suspected EFE to authorized investigatory agencies if the agency serves a subpoena.  Additionally, Maryland and Washington permit, but do not require, financial institutions to provide records related to suspected EFE as part of a report or referral or upon request pursuant to an investigation.

Employee Obligations:

Ohio now requires that employees of banks, savings banks, savings and loan associations, or credit unions, in addition to certain financial professionals, report suspected financial exploitation.

CFPB Recommendations to Financial Institutions

The  CFPB also made a series of  recommendations in the Update.

Protocols and Procedures:

First, financial institutions should develop and implement internal protocols and procedures for protecting account holders from EFE, including training requirements, procedures for making reports, compliance with the Electronic Fund Transfer Act as implemented by Regulation E, means of consent for information-sharing with trusted third parties, and procedures for collaborating with key stakeholders.

Technology:

Second, financial institutions should harness technology to detect EFE by ensuring that their fraud detection systems include analyses of the types of products and account activity that may be associated with EFE risk.

Reporting:

Third, financial institutions should report suspected EFE to all appropriate local, state, or federal responders, regardless of whether reporting is mandatory or voluntary under state or federal law (which, in general, does not violate the privacy provisions of the Gramm-Leach-Bliley Act).

SAR Filings:

Fourth, financial institutions should file Suspicious Activity Reports (“SARs”) when the financial institution suspects EFE.  When a financial institution files an EFE-related SAR, it should also report to APS and/or relevant law enforcement agencies.  Financial institutions should work with their legal counsel to expedite their responses to requests for SAR supporting documentation by law enforcement and other agencies with authority to access SARs.

Collaboration:

Fifth, financial institutions should collaborate with other stakeholders such as law enforcement, APS, and service organizations, as well as expedite documentation requests and provide financial records at no charge to APS and law enforcement when requested.

Training:

Finally, financial institutions should establish clear, efficient training protocols to enhance their capacity to prevent, detect, and respond to EFE.  This training curriculum should include indicators of potential EFE, describe what actions to take when employees detect problems, and describe the roles of management, frontline staff, and other employees.  A key benefit from following this suggestion is that under the Federal Senior Safe Act, which became effective in June 2018, an eligible financial institution[i] is not liable for disclosing suspected EFE to certain agencies if the institution has trained its employees on identifying EFE and the disclosure is made in good faith and with reasonable care by a trained employee.[ii]

Takeaways

These developments at the state level and recommendations by the CFPB strongly indicate a governmental full‑court press against EFE.  While local, state, and federal agencies and law enforcement are all working to identify and address EFE, financial institutions play an integral role in the process.  Financial institutions should ensure compliance with state law and should train their personnel to detect EFE and report suspected EFEs to relevant law enforcement and governmental agencies.

[i] Eligible institutions are depository institutions, credit unions, investment advisers, broker/dealers, insurance companies, insurance agencies, insurance advisers, and transfer agents.

[ii] Specifically, the training must: (1) instruct any individual attending the training on how to identify and report the suspected exploitation of a senior citizen internally and, as appropriate, to government officials or law enforcement authorities, including common signs that indicate the financial exploitation of a senior citizen; (2) discuss the need to protect the privacy and respect the integrity of each individual customer of the covered financial institution; and (3) be appropriate to the job responsibilities of the individual attending the training.

Maine Enacts Law Protecting Victims of Economic Abuse

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A&B Abstract:  An Act to Provide Relief to Survivors of Economic Abuse (the “Economic Abuse Law”), effective September 19, 2019, is aimed at preventing “economic abuse” by providing certain protections to victims of such abuse, in part, by imposing additional obligations on debt collectors and consumer reporting agencies (“CRAs”).  Debt collectors and CRAs should carefully review the Economic Abuse Law and determine whether updates to their policies, procedures and controls are necessary to ensure compliance with these additional protections.

What does the Economic Abuse Law do?

The Economic Abuse Law attempts to help victims of so-called “economic abuse” by (i) amending the Maine Fair Debt Collection Practices Act (“MFDCPA”) to provide certain protections from debt collection for survivors of economic abuse, (ii) amending the Maine Fair Credit Reporting Act (“MFCRA”) to require credit reporting agencies to remove from a consumer’s credit report any debt that is determined to be the result of economic abuse, and (iii) authorizing the courts to order compensation for losses resulting from economic abuse.

What is “economic abuse”?

Under the Economic Abuse Law, “economic abuse” means causing or attempting to cause an individual to be financially dependent by maintaining control over the individual’s financial resources.  The definition also includes the following non-exhaustive list of certain types of economic abuse:

  • unauthorized use of credit or property,
  • withholding access to money or credit cards,
  • forbidding attendance at school or employment,
  • stealing from or defrauding of money or assets,
  • exploiting the individual’s resources for personal gain of the defendant, or
  • withholding physical resources such as food, clothing, necessary medications or shelter.

See 19-A M.R.S. § 4002(3-B).  The Economic Abuse Law’s legislative history clarifies that the definition of “economic abuse” “is not intended to address identity theft, which is covered by the federal Fair Credit Reporting Act . . . Instead, the amendment includes, but is not limited to, the exploitative use of joint credit accounts without authorization by both joint owners and debt incurred through coercion.”

What protections does the Economic Abuse Law provide?

Additional Protections Under the MFDCPA

Under the existing provisions of the MFDCPA, if a consumer notifies a debt collector in writing within 30 days of receiving a debt validation notice, that the debt, or any portion of the debt, is disputed or that the consumer requests the name and address of the original creditor, the debt collector must cease collection of the debt or any disputed portion of the debt, until the debt collector obtains verification of the debt or a copy of the judgment, or the name and address of the original creditor, and a copy of the verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.  32 M.R.S. § 11014(2).

The Economic Abuse Law amends the MFDCPA to also require that a debt collector cease collection of a debt or any disputed portion of a debt owed by a consumer subjected to economic abuse, “[i]f the consumer provides documentation to the debt collector as set forth in [14 M.R.S. § 6001(6)] that the debt or any portion of the debt is the result of economic abuse.”  Under 14 M.R.S. § 6001(6), acceptable documentation includes (1) a statement signed by a Maine-based sexual assault counselor, an advocate, or a victim witness advocate, (2) a statement signed by a health care provider, mental health care provider or law enforcement officer, or (3) a copy of a (i) protection from abuse (or harassment) complaint or a temporary order or final order of protection, (ii) police report prepared in response to an investigation of an incident of domestic violence, sexual assault or stalking, or (iii) criminal complaint, indictment or conviction for a domestic violence, sexual assault or stalking charge.

Unlike the existing protections discussed above, this new provision could be read to impose an absolute bar to the collection of debt resulting from economic abuse, as it is unclear whether there could be circumstances under which a debt collector may resume collection of such debt.  For example, one piece of acceptable documentation that a victim may provide under 14 M.R.S. § 6001(6) is a “copy of a protection from abuse complaint or a temporary or final order of protection.”  To the extent that a debt collector relies on a complaint or temporary order of protection that a court ultimately dismisses, it is unclear whether, and if so how, a debt collector could resume collection of such debt.

Additional Protections Under the MFCRA 

The MFCRA requires that, if a consumer disputes any item of information contained in a consumer’s credit report on the grounds that it is inaccurate and the dispute is directly conveyed to the consumer reporting agency (“CRA”) by the consumer, the CRA must reinvestigate and record the current status of the information within 21 calendar days of notification of the dispute, unless the dispute is frivolous.  10 M.R.S. § 1310-H(2).

The Economic Abuse Law would provide additional protections for victims of economic abuse.  Specifically, if a consumer provides documentation to a CRA as set forth in 14 M.R.S. § 6001(6) that the debt or any portion of the debt is the result of economic abuse, the CRA must reinvestigate the debt and, if it is determined that the debt is the result of economic abuse, the CRA must remove from the consumer’s credit report any reference to the debt or any portion of the debt determined to be the result of economic abuse.  10 M.R.S. § 1310-H(2-A).

Compensation for Victims of Economic Abuse 

In addition to the foregoing, the Economic Abuse Law also amends Maine’s Protection from Abuse Chapter to expressly empower the courts to provide monetary compensation to victims of economic abuse.  Specifically, courts are expressly authorized to “enter a finding of economic abuse” and “[o]rder payment of monetary relief to the plaintiff for losses suffered as a result of the defendant’s conduct.”  See 19-A M.R.S. § 4007(1).  The legislative history clarifies that the [Economic Abuse Law] does not add economic abuse as a type of conduct for which a protection from abuse order may be sought, although it does provide that if a protection from abuse order is issued, the court has expanded discretion to order appropriate monetary relief to help address the impact of any economic abuse that may be found by the court.”

Takeaway

As Maine regulators gear up to implement and enforce the additional protections provided by the Economic Abuse Law, debt collectors and CRAs should carefully review and update their policies, procedures and controls to ensure compliance with these additional protections.

Massachusetts Poised to Regulate Student Loan Servicers

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A&B ABstract: Amid growing concerns of a student loan crisis, proposed Massachusetts H. 3977 is worth watching. If enacted, it would provide the Division of Banks and the Attorney General additional regulatory and enforcement authority over student loan servicers. It also would establish a new Consumer Assistance Unit to help consumers address complaints in any area enforced by the Division of Banks.

Discussion

As reported in Housing Wire, student loan debt has reached $1.5 trillion, enough to buy every home in the United States twice.  In response to the foreclosure crisis, Massachusetts enacted robust laws over mortgage servicers and continues to be active in enforcing those laws.  It should come as no surprise then that the Commonwealth is turning its attention to student loan servicers and proposing additional oversight by Office of Attorney General (“Office”) and the Division of Banks (“Division”). While Massachusetts legislators have proposed multiple measures to regulate student loan servicers, H. 3977 is the one to watch in 2019.

A New Licensing Obligation

Effective in January 2021 H. 3977 would  provide that “[n]o person shall directly or indirectly act as a student loan servicer” without obtaining a license from the Division unless exempt. A “student loan servicer” is defined broadly to include

companies that collect payments on a student loan, respond to customer service inquiries, and perform other administrative tasks associated with maintaining a student loan, disburse money from the student loan track student loans while borrowers are in school, process payments, respond to borrower inquiries and information requests, accept applications and process changes in repayment plans, deferments, forbearances, or other activities to prevent default, maintain student loan records, ensure the administration of loans in compliance with federal regulations and other legal requirements.

An exemption is available for banks, credit unions and their wholly owned subsidiaries as well as operating subsidiaries where each owner of the operating subsidiary is wholly owned by the same bank or credit union. It is unclear if the Commonwealth will require passive investors to become licensed.

Other Provisions of Note

While the measure doesn’t impose substantive practice requirements, it includes other provisions of note.

First, it imposes a minimum two-year record retention requirement and requires a servicer to produce records within five business days of a request from the Commissioner of Banks (“Commissioner”) or the Student Loan Ombudsman.

Second, it gives the Commissioner broad investigation and enforcement authority. Of note, the Commissioner may revoke or refuse to renew a student loan servicer licensed if he finds two or more violations during a one-year licensing period.  Further, a violation of federal law would constitute a violation of Massachusetts law. The Commissioner also may impose an administrative penalty of up to $50,000 per incident.;

Third, the measure prohibits a student loan servicer from engaging in unfair or deceptive acts. A violation of this law is also a violation of Chapter 93A, the Commonwealth’s UDAP law that allows for treble damages.

The Student Loan Ombudsman

Following the examples set by other states (including Maine, Maryland, New Jersey and New York) and the CFPB, the measure would establish as of September 1, 2020, a “student loan ombudsman” within the Office .  The Ombudsman’s responsibilities include helping borrowers explore repayment options, apply for federal programs, avoid or remove a default, resolve billing disputes or garnishments, obtain loan account details, stop harassing collection calls and apply for discharges.  The Ombudsman also would disseminate educational materials and share information with the Division.

The Consumer Assistance Unit

As of September 1, 2020, the measure would establish a new Consumer Assistance Unit housed within the Division.  The Unit would have broad authority to help consumers address complaints in (i) any area the Commissioner has authority to regulate involving state-chartered banks and credit unions, check cashers, foreign transmittal companies, sales finance companies, mortgage lenders, brokers, originators, and student loan servicers, or (ii) other areas as the Commissioner deems appropriate.

Takeaway

Student loan servicing is on the radar of Massachusetts regulators.  Companies should be mindful of H. 3977. Additionally, with the creation of the Consumer Assistance Unit and with H. 3977 granting broad investigation and enforcement authority to the Commissioner, we expect to see increased scrutiny and enforcement actions relative to student loan servicers.

Arizona Seeks to Improve FinTech Sandbox with HB 2177

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A&B ABstract: Arizona launched a first-in-the-nation FinTech Sandbox in August 2018, which has been a successful venture by the state. Arizona seeks to improve this program with the enactment of HB 2177 and the Arizona Attorney General Office’s involvement in the CFPB’s American Consumer Financial Innovation Network.

Arizona’s FinTech Sandbox

In August 2018, Arizona was the first state to launch its “FinTech Sandbox” to ease state regulatory burdens for persons offering innovative financial technologies. (The July 2019 Alston & Bird LLP Structured Finance Spectrum provides further details).  This program allows such persons to register with the Attorney General’s Office and conduct limited tests of their technologies under its supervision without otherwise complying with more burdensome licensing and regulatory requirements. Arizona Attorney General Mark Brnovich has touted the success of this program, stating that it is “the most active and successful regulatory sandbox in North America.”

House Bill 2177

To improve this program, Arizona enacted HB 2177, which:

  • Makes businesses that provide a “substantial component of a financial product or service” eligible to participate, which will (i) allow for tests of products that affect how financial services are provided in the marketplace even if the product itself is not regulated and (ii) enable regulatory technology (“RegTech”) products to now seek entry into the program as stand-alone participants;
  • Requires applicants to demonstrate the cybersecurity measures they will undertake as part of a sandbox test to ensure consumer data remains private and protected; and
  • No longer requires that sandbox tests involving payments involve the participation of Arizona residents, as long as the transaction occurs in Arizona.

In a recent announcement regarding HB 2177, Attorney General Brnovich also announced his office’s participation in the American Consumer Financial Innovation Network (“ACFIN”).  ACFIN is a new CFPB initiative that seeks to bring together state and federal financial services regulators to collaborate on innovation-fostering programs like the FinTech Sandbox.  Given his office’s experience administering the program, Brnvich is encouraged by the federal efforts evident in ACFIN.

Takeaway

In addition to Arizona, Alabama, Georgia, Indiana, South Carolina, Tennessee and Utah are members of ACFIN. We are keeping our eyes on ACFIN, as we believe this to be an important initiative, and look forward to what is to come.

South Carolina Revisiting Borrower Preference Requirements

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A&B ABstract: The South Carolina Department of Consumer Affairs  (“Department”) announced that it is soliciting comments on proposed Regulation 28-75, which would provide mortgage lenders with additional guidance on the state’s attorney and insurance agent borrower preference requirements.

Determination of Borrower Preferences

Section 37-10-102 of the South Carolina Consumer Protection Code requires a creditor to ascertain and comply with the consumer’s preference as to the legal counsel the consumer wants to hire to conduct the transaction. The requirement is not new – it was enacted in 1976 and amended in 1996 – but it is vigilantly enforced by state regulators.  Despite the Department’s issuance of numerous guidance documents (most recently in February 2017, as discussed in a previous client advisory), the requirement still presents compliance challenges to mortgage lenders.

According to regulators, satisfying Section 37-10-102 requires: (i) providing consumers the notice of the right to select an attorney and insurance agent within three days of an application; (ii) ascertaining these preferences before loan closing; and (iii) assuring that the borrower-chosen providers execute the loan closing. ‘

The Department recognizes a safe harbor, of sorts, if the lender provides the borrower with a form (based on Consumer Protection Code Administrative Interpretation 10.102(a)-8302) and the form is fully completed and signed and dated by the borrower.

The statute is designed to ensure that lenders do not improperly force or steer borrowers to an attorney. But what happens when a borrower states his or her preference to the lender, rather than including it on the form? Or if the borrower truly doesn’t have a preference?  Must a lender require a borrower to select an attorney when the borrower doesn’t have a choice?  The Department is poised to provide additional clarity to the industry. However, the Department’s announcement is light on details, merely noting that a future regulation may clarify creditors’ responsibilities and provide definitions.

Takeaway

Additional guidance from the Department is a welcome development.  Interested parties should submit written comments by 5 p.m. on October 29, 2019 to Kelly Rainsford, Deputy of Regulatory Enforcement, South Carolina Department of Consumer Affairs, P.O. Box 5757, Columbia, SC 29250.