Alston & Bird Consumer Finance Blog

State Law

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.

Massachusetts Settlement Agreements Highlight AG’s Compliance Expectations

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A&B Abstract: In a series of 2019 settlement agreements, the Massachusetts Attorney General has publicly provided insights into her compliance expectations for residential mortgage servicers.  The settlements demonstrate a focus on compliance with the Commonwealth’s Act to Prevent Unlawful and Unnecessary Foreclosures, codified in part as M.G.L. Chapter 244, Section 35B (“Section 35B”) and its unfair and deceptive acts and practices law (the “UDAP law”), found in Chapter 93A of the Massachusetts General Laws.

Section 35B and Chapter 93A Expectations

Section 35B prohibits a creditor (defined to include a servicer) from causing publication of notice of a foreclosure sale upon “certain mortgage loans” unless it has first taken reasonable steps and made a good faith effort to avoid foreclosure.  To be considered to have taken reasonable steps and made a good faith effort to avoid foreclosure, a creditor must have provided a statutorily defined notice (“35B Notice”) at the time a borrower is in default.  Additionally, if certain criteria are met, a creditor must conduct a review to determine whether the borrowers are eligible for a loan modification prior to publishing a notice of foreclosure sale pursuant to M.G.L. ch. 244, Section 14. While the requirements may sound simple, they are complex and difficult to operationalize.

To avoid violations of Section 35B and the UDAP law, the Massachusetts Attorney General expects servicers to:

  • Accurately record, capture or note in the servicing system when borrowers exercise their right to pursue a loan modification under Section 35B by returning the mortgage modification options form (“MMO”), as required by 209 CMR 56.09;
  • Complete a timely review of borrowers’ loan modification applications, as required by Section 35B(c), and avoid causing undue delay in the loan modification review process;
  • Disclose to borrowers the servicer’s determination of the income, debts and obligations and the net present value assessment performed by the servicer in the review of the loan modification, as required by Section 35B(c);
  • Offer modifications, including short-term and interest-only modifications that reflect the borrower’s future ability to repay the modified mortgage loan according to its scheduled payments, as required by Section 35B(b);
  • Not deny loan modification applications on the basis that the borrower did not return sufficient documents to be reviewed, if the servicer did not adequately or timely communicate the requirements to the borrowers or identify when all such documents have in fact been submitted;
  • Provide borrowers with notice of their right to present a counter-offer after being offered a loan modification as part of a Section 35B review, as required by Section 35B(c);
  • Take reasonable steps and make a good faith effort to avoid foreclosure when a borrower requested a loan modification;
  • Not record affidavits pursuant to Section 35B(f) attesting compliance with the requirements of Section 35B where deficiencies exist  in the servicers’ Section 35B loan modification review process, including the failure to identify MMO forms returned by the borrower; and
  • Accurately and timely report accurate borrower response rates under Section 35B to the Massachusetts Division of Banks (“DOB”) as required by 35B(g).

Additional Chapter 93A Expectations

To avoid UDAP concerns, servicers should also:

  • Provide borrowers in default meaningful access to a single point of contact (“SPOC”), such that borrowers can (i) reach a person who can provide information about the modification application, foreclosure status or other account information, and (ii) adequately ensure accessibility to company representatives to ensure borrowers do not encounter connectivity issues, including busy signals, long hold times, and multiple transfers without reaching a live representative;
  • Provide successors-in-interest (“SIIs”) information about what documentation is required to access the account, provide SIIs accurate information as to the availability and requirements related to loss mitigation programs, and adequately note in borrower account files a confirmed SII, such that surviving spouses or other types of SIIs are not required to resubmit death certificates or other documentation, when a servicer already has  such documentation;
  • Proactively  communicate with limited English proficiency (“LEP”) borrowers in their native language to provide information related to the mortgage account, adequately notate in the borrower account files a borrowers LEP status such that LEP borrowers do not have to reestablish their language-access needs with each contact with a servicer, and do not make outgoing calls to previously confirmed LEP borrowers without first engaging reasonably available translation services, such that LEP borrowers (i) encounter an English-speaking representative, (ii) face unexplained holds while translation services are engaged, and (iii) become confused about the nature of the call and disconnect;
  • Allow borrowers to complete short sales by (i) approving, explicitly or implicitly, a listing price in connection with a short sale application only after confirming the loan’s investor would accept an offer received at that price, (ii) not countering or rejecting short sale offers that meet the approved listing price due to a failure to obtain investor proceeds requirements prior to explicitly or implicitly approving the listing price, (iii) having adequate processes to resolve disputes in valuation of a property, and (iv) having a standardized or consistent review process such that borrowers attempting to complete a short sale do not have to relist the property to meet the servicer’s requirements; and
  • For in-flight modifications, ensure that loss mitigation applications initiated by a prior servicer are continued and  identify and honor loan modifications offered by previous servicer.

Takeaway:  

These settlement agreements serve as a reminder that Massachusetts continues to be active in mortgage servicing issues and will use its broad and sometimes nebulous UDAP authority to enforce activities that aren’t specifically regulated under existing law.