Category: finance

House Vote on Cannabis Industry-Related SAFE Banking Act Scheduled for September 2019

As early as September 23, 2019, the United States House of Representatives is expected to vote on the widely anticipated Secure and Fair Enforcement (SAFE) Banking Act. First introduced in both chambers of Congress in 2017, re-introduced in the House in March of 2019, and amended this past June, the SAFE Banking Act has garnered bipartisan support as a necessary solution to the dilemma created by conflicting federal and state cannabis law regimes, particularly as it relates to financial service providers.

According to a press release issued by the House Committee on Financial Services on March 26, 2019, committee chairwoman, Representative Maxine Waters (D-CA), remarked, the SAFE Banking Act “addresses an urgent public safety concern for legitimate businesses that currently have no recourse but to operate with just cash.” The Act joins the ranks of congressional efforts such as the Rohrabacher-Farr amendment to omnibus spending bills, Section 728 of the Consolidated Appropriations Act of 2019, the pending Blumenauer amendment, and proposed Strengthening the Tenth Amendment Through Entrusting States (STATES) Act—all of which seek to reconcile the federal government’s failure to enact comprehensive marijuana and, until recently, hemp policy despite widespread support on the state and local level. Status in the Senate is uncertain, as the chair of the Banking Committee has indicated an intent to poll those in Idaho, a state that has failed to legalize any form of cannabis, regarding the issue.

Today’s cannabis industry encompasses the growth, processing, distribution, and other ancillary services related to both hemp and marijuana. While hemp and marijuana are both derived from the plant Cannabis sativa L, they are legally distinguished on both a federal and state level by their THC content. As a result, marijuana remains a controlled substance under federal law, while hemp, boasting lower THC levels, is classified as an agricultural product within the purview of the United States Department of Agriculture (USDA). This federal distinction, however, has not prevented more than 40 states from legalizing marijuana for medical and/or recreational adult use. Unfortunately, the businesses that choose to take advantage of such progressive state marijuana laws must do so without the support of traditional financial institutions that businesses, particularly minority and women-owned, rely on to fund and protect their financial growth.

According to §4(a) of the bill’s text, the SAFE Banking Act will shield depository institutions that serve cannabis-related businesses from federal penalties in states and Indian country where “cultivation, production, manufacture, sale, transportation, display, dispensing, distribution, or purchase” of cannabis is legal. In particular, the Act will prohibit regulators from terminating or limiting deposit or share insurance of financial instruments because an institution’s client participates directly or indirectly in the cannabis industry. Regulators will also be prohibited from penalizing institutions for authorizing, processing, clearing, settling, billing, transferring, reconciling, or collecting payments for a legitimate cannabis-related business for payments made by any means, including a credit, debit, or other payment card, an account, check, or electronic funds transfer. Perhaps, most importantly, the Act will also require the Federal Financial Institutions Examination Council (FFIEC) to develop uniform guidance and examination procedures for depository institutions serving cannabis-related businesses.

For financial institutions and insurance providers operating in states where cannabis is legal, this creates an immense opportunity and incentive to assist industry participants as they strive to protect and invest their monetary assets without putting the institutions they rely on at risk of federal prosecution. However, because protections under the SAFE Banking Act only apply when legitimate cannabis-related businesses are involved, monitoring clients’ compliance with relevant state laws will be particularly important. In the absence of clear federal marijuana policy and official hemp regulations under the 2018 Farm Bill, in addition to constantly evolving state laws and regulations, this may prove especially challenging. As such, in anticipation of the Act’s passage, financial institutions should enlist the support of experienced legal counsel to ensure the necessary processes for monitoring clients’ compliance are in place. In addition, those seeking to benefit under the Act should still pay close attention to due diligence requirements promulgated by the Financial Crimes Enforcement Network (FinCEN), although many concerns should be alleviated by the Act’s prohibition on civil or criminal prosecution solely based on the provision of financial services or investing income derived from such services.

NOTE: Cannabis as defined under the Act only references marijuana. However, in practice, the bill’s passage should alleviate apprehension surrounding hemp, as many financial institutions and their affiliates have refrained from offering services to hemp businesses under the current financial legal framework, even in the wake of the 2018 Farm Bill and pending USDA regulations.

Read the bill’s text here.

© 2019 Dinsmore & Shohl LLP. All rights reserved.

This article was written by Jennifer K. Mason, Michael G. Dailey and Ambur C. Smith of Dinsmore & Shohl LLP.
For more marijuana & cannabis legislation, see the National Law Review Biotech, Food & Drug law page.

Important Differences Between Federal and Private Student Loans

Student loan borrowers commonly wonder whether they should refinance federal loans into private loans. There are many factors to consider in the case of federal loans, such as interest subsidies and possible forgiveness (but often with income tax consequences) paired with interest rates that are often lower in the case of private loans. Knowing the differences between federal and private student loans is imperative when making this decision.

Most notably, federal student loans are generally forgiven upon death whereas private lenders will pursue an estate for amounts owed by deceased borrowers.

Before refinancing your federal student loans into private ones, consider the cost of the extra life insurance you will need to purchase to cover the debt and, if you have already refinanced, be sure that your insurance coverage is adequate so that amounts intended for your family do not instead pay back creditors. When planning for federal student loan forgiveness, do not forget to account for any associated cancellation of debt income and purchase adequate insurance to cover the anticipated tax burden. The income tax on cancellation of debt income regarding federal student loans forgiven due to death was eliminated by the 2017 Tax Cuts and Jobs Act but this change is set to expire at the end of 2025 unless extended by Congress.

Similarly, consider any federal interest subsidies that may be available before refinancing. In some cases, the offset of the federal interest subsidy combined with the cost of the additional life insurance needed to cover the private loan debt makes refinancing a disadvantageous move.

In all cases, be sure to discuss the extent and type of your student loan debt and your repayment plan with your estate planning attorney. Planning for federal student loans is notoriously difficult because they are a moving target. The rules surrounding forgiveness, associated income tax consequences, repayment plans and interest subsidies can be changed at any time by any administration. Until a borrower’s loans are actually forgiven or paid off, the rules may be changed in the middle of the game which can make planning very dynamic. It is imperative to monitor the laws surrounding student loans and how they may affect repayment options, forgiveness options and associated income tax consequences.

© 2019 Varnum LLP

ARTICLE BY Rebecca K. Wrock of Varnum LLP.

Jurisdictional Lessons from Mt. Gox Cryptocurrency Litigation

Last week, on the heels of a significant decline in Bitcoin prices, Forbes reported that China’s Central Bank is set to launch the world’s first state-backed cryptocurrency. The cryptocurrency will be made available initially to seven of China’s largest financial institutions, including three banks and two financial technology companies (including Alibaba).  It is planned to eventually reach the virtual wallets of U.S. consumers, through relationships with Western correspondent banks.

Meanwhile, in the United States, litigation rages on against Mark Karpeles, the President and CEO of Mt. Gox. Formerly the world’s leading bitcoin exchange platform, Mt. Gox filed for bankruptcy protection in Japan in 2014 amidst reports of rampant security breaches and refusal by its Japanese banking partner, Mizuho Bank, to process withdrawals for Mt. Gox users. Before its bankruptcy, Mt. Gox announced that 850,000 bitcoins valued at more than $450 million had gone “missing,” likely due to cyber theft.

In the aftermath, Mt. Gox account holders filed putative class actions against Karpeles and Mizuho in the Central District of California, the Northern District of Illinois, and the Eastern District of Pennsylvania, asserting causes of action for negligence, fraud, and tortious interference. In each action, both defendants filed motions to dismiss, claiming lack of personal jurisdiction due to their residences in France and Japan, respectively.

Earlier this year, all three courts dismissed Mizuho from the litigation, agreeing that the bank did not purposefully direct any activity at the forum states. Mt. Gox’s bank accounts with Mizuho were located in Japan, the decisions not to process withdrawals from those accounts were made by Mizuho employees located in Japan, and all wire transfers were initiated or received in Japan.

However, all three courts denied Mr. Karpeles’ motions to dismiss for lack of personal jurisdiction.  Mr. Karpeles,  a French citizen, argued that his contacts with the forum states were merely the incidental result of where some Mt. Gox users lived. The courts unanimously disagreed.

In the most recent of these three decisions, the Eastern District of Pennsylvania, relying on the previous decisions by the courts in California and Illinois, held that it has specific jurisdiction over Karpeles “because he availed himself of the privilege of conducting business in Pennsylvania through soliciting business from [a named plaintiff] and thousands of other Pennsylvania residents through the Mt. Gox website.” Pearce v. Karpeles, No. CV 18-306, 2019 WL 3409495, at *4 (E.D. Pa. July 26, 2019).

The Court applied the “sliding scale” test established by Zippo Manufacturing v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1123-24 (W.D. Pa. 1997), which has been characterized as “a seminal authority regarding personal jurisdiction based upon the operation of an internet website,” to determine that Karpeles’ internet presence sufficiently gave rise to personal jurisdiction over him. Karpeles, 2019 WL 3409495, at *4-5. The Zippo scale “ranges from situations where a defendant uses an interactive commercial website to actively transact business with residents of a forum state (personal jurisdiction exists) to situations where a passive website merely provides information that is accessible to users in the forum state (personal jurisdiction does not exist).” Id. at *4. Under that Pennsylvania precedent, a defendant has purposefully availed itself of the privilege of doing business in the state if its website “repeatedly attracts business from a forum or knowingly conducts business with forum state residents via the site.” Id. at *5.

The Court held that Mt. Gox’s internet activity fell at the “interactive end of the Zippo spectrum.” Id. Mt. Gox’s website was interactive, allowing users to open and manage accounts, make purchases and trades, and transfer and deposit cash. Id. Further, Mt. Gox had knowledge of the residences of its users because at the time they opened accounts, they had to provide Mt. Gox with their addresses and other personal information. Id. Users could also purchase “Yubikeys” (a hardware authentication device that allows users to securely log into their accounts) to be sent to their physical addresses. Id. Approximately 4% of all Mt. Gox users (over 19,000 individuals) who registered with addresses were Pennsylvania citizens, making Karpeles’ interactions with the forum state neither random, isolated, nor fortuitous. Id. at *6.

The Court also rejected Karpeles’ assertion that it would be unfair to force him to defend in the United States since he is on probation in Japan and prohibited from leaving the country, holding that the interests of the plaintiffs and the forum state justified any burden of defending in Pennsylvania. Karpeles, 2019 WL 3409495, at *8-9.

The increased use of cryptocurrency looks inevitable, with Facebook’s cryptocurrency, Libra, poised to launch in 2020, and some economists proposing that a cryptocurrency backed by central banks throughout the world will email one day replace the U.S. dollar as the world’s global reserve currency. As cryptocurrency proliferates, it is likely that so too will cryptocurrency litigation, bringing with it a host of jurisdictional challenges for litigants. The Mt. Gox-related orders provide valuable insight into how some such challenges may be resolved in the future.

© 2019 Bilzin Sumberg Baena Price & Axelrod LLP

ARTICLE BY Shalia Sakona and Philip R. Stein of Bilzin Sumberg.

Commercial PACE Works: National Study Shows Only One Default Out of 1,870 Deals

A recent study by the US Department of Energy’s Lawrence Berkeley National Lab shows that commercial property assessed clean energy loans (PACE) are growing in popularity and are a good bet for lenders and property owners. Through 2017, projects worth $887 million have been completed, creating more than 13,000 jobs.1 The study found just one default on a PACE loan out of 1,870 deals nationwide since 2008.2

PACE is an innovative program that enables property owners to obtain low-cost, long-term loans for energy efficiency, renewable energy, and water conservation improvements. Projects financed using PACE can generate positive cash flow upon completion with no up-front, out-of-pocket cost to property owners—eliminating the financial barriers that typically prevent investment in revitalizing aging properties. The term of a PACE Financing may extend up to the useful life of the improvement, which may be as high as 20 years or more, and can result in cost savings that exceed the amount of the PACE financing. The result is improved business profitability, an increase in property value, and enhanced sustainability. PACE financing is also available for new construction under Wisconsin law.

Along with the Wisconsin Counties Association, Slipstream and other partners, von Briesen had a leadership role in creating PACE Wisconsin, a joint powers commission comprising a consortium of Wisconsin counties. von Briesen’s vision of a uniform PACE program throughout the state was implemented through creation of a joint powers commission open to any county that wishes to join. PACE is now available in 43 Wisconsin counties, representing 85% of the state’s population.

The recent PACE study also showed that most jurisdictions adopting PACE programs are using a model similar to the one adopted in Wisconsin, because it is easy for local governments to administer.3 Midwestern states are leading the way in expanding PACE. Wisconsin now ranks 11th in PACE financing deals completed, according to PACENation data through 2017.4 In 2019 PACE Wisconsin closed an $8.8 million deal on a historic hotel renovation in Green Bay, financed with a taxable bond offering by the Public Finance Authority. PACE Wisconsin has $15 million in total closings so far in 2019, and over $10 million in the pipeline for the rest of the year.

PACE Wisconsin has registered more than 80 contracting firms that are ready to make buildings more efficient and more comfortable, and has 17 capital providers available to finance building upgrades and new construction. PACE Wisconsin is also supporting legislation to improve the program by reducing paperwork requirements and making financing available for electric vehicle charging equipment. More information about PACE Wisconsin can be found on its website, www.pacewi.org.

1 PACE Market Data, PACENation website, https://pacenation.us/pace-market-data/(accessed August 4, 2019)
2 Commercial PACE Financing and the Special Assessment Process: Understanding Roles and Managing Risks for Local Governments, Greg Leventis and Lisa Schwartz, Lawrence Berkeley National Laboratory, June 2019, http://eta-publications.lbl.gov/sites/default/files/final_cpace_brief_1_ 112308-74205-eere-c-pace-report-arevalo-fz.pdf (accessed August 4, 2019).
3 Commercial PACE Financing and the Special Assessment Process: Understanding Roles and Managing Risks for Local Governments, Greg Leventis and Lisa Schwartz, Lawrence Berkeley National Laboratory, June 2019, http://eta-publications.lbl.gov/sites/default/files/final_cpace_brief_1 _112308-74205-eere-c-pace-report-arevalo-fz.pdf (accessed August 4, 2019).
4 Study: Nonpayment risk remote for commercial clean energy loans, Frank Jossi, Midwest Energy News, July 31, 2019, https://energynews.us/2019/07/31/national/study-nonpayment-risk-remote-for-commercial-clean-energy-loans/ (accessed August 4, 2019) (citing PACE Market Data, PACENation website, https://pacenation.us/pace-market-data/ (accessed August 4, 2019)).

©2019 von Briesen & Roper, s.c

Trump Administration to Discharge the Federal Student Loan Debt of Totally and Permanently Disabled Veterans

On August 21, 2019, President Trump signed a Presidential Memorandum that streamlines the process by which totally and permanently disabled veterans can discharge their Federal student loans (Federal Family Education Loan Program loans, William D. Ford Federal Direct Loan Program loans, and Federal Perkins Loans).  Through the revamped process, veterans will be able to have their Federal student loan debt discharged more quickly and with less burden.

Under federal law, borrowers who have been determined by the Secretary of Veterans Affairs to be unemployable due to a service-connected condition and who provide documentation of that determination to the Secretary of Education are entitled to the discharge of such debt.  For the last decade, veterans seeking loan discharges have been required to submit an application to the Secretary of Education with proof of their disabilities obtained from the Department of Veterans Affairs.  Only half of the approximately 50,000 totally and permanently disabled veterans who qualify for the discharge of their Federal student loan debt have availed themselves of the benefits provided to them.

The Memorandum directs the Secretary of Education to develop as soon as practicable a process, consistent with applicable law, to facilitate the swift and effective discharge of applicable debt.  In response, the Department of Education has said that it will be reaching out to more than 25,000 eligible veterans.  Veterans will still have the right to weigh their options and to decline Federal student loan discharge within 60 days of notification of their eligibility.  Veterans may elect to decline loan relief either because of potential tax liability in some states, or because receiving loan relief could make it more difficult to take future student loans.  Eligible veterans who do not opt out will have their remaining Federal student loan debt discharged.

Copyright © by Ballard Spahr LLP
Article by Stacy H. Rubin of Ballard Spahr LLP.
For more veteran’s affairs, see the National Law Review Government Contracts, Maritime & Military Law page.

Payment Processor Held Accountable by FTC

The Federal Trade Commission and the Ohio attorney general recently initiated legal action against a payment processor arising from alleged activities that enabled its customers to defraud consumers.

According to the FTC, the defendants generated and processed remotely created payment orders (“RCPOs”) or checks that allowed unscrupulous merchants, including deceptive telemarketing schemes, to withdraw money from their victims’ bank accounts.

The FTC’s Telemarketing Sales Rules specifically prohibits the use of RCPOs in connection with telemarketing sales.  RCPOs are created by the processor and result in debits to consumers’ bank accounts without a signature.

“To execute their payment processing scheme, Defendants open business checking accounts under various assumed names with banks and credit unions, the majority of which are local institutions,” according to the complaint.  Within the last five years, the defendants opened at least 60 business checking accounts at 25 different financial institutions, mainly in Texas and Wisconsin, to enable their activity, the regulators said. “Defendants often misrepresent to the financial institution the type of business for which they open the account, and routinely fail to disclose the real reason for which they open the account—processing consumer payments for third-party merchants via RCPOs.  Red flags about Defendants’ practices have led at least 15 financial institutions to close accounts opened by Defendants.  When that happens, Defendants typically open new accounts with different financial institutions.  ”

According to the Ohio AG and FTC lawyers, the defendants specifically market their RCPO payment processing service to high risk merchants.  The complaint also alleges that the defendants are aware that some of their largest merchant- clients sell their products or services through telemarketing.

The FTC and Ohio AG also allege that the defendants violated the TSR by charging consumers advance fees before providing any debt relief service, failing to identify timely and clearly the seller of the purported service in telemarketing calls, and failing to pay to access the FTC’s National Do Not Call Registry.

The Ohio AG previously had previously filed suit against the defendants for similar violations.

According to the FTC CID attorneys, the telemarketing operations that defendants supported included, among others, student debt relief schemes, and a credit interest reduction scheme.  The FTC and Ohio allege that using RCPOs, the defendants have withdrawn more than $13 million from accounts of victims of these telemarketing operations since January 2016.

“The FTC will continue to pursue such schemes aggressively, and hold accountable payment processors that are complicit in the illegal conduct,” FTC lawyer Andrew Smith said in a statement about the case.

The complaint alleges violations of the FTC Act and Ohio state law, and seeks injunctive relief plus disgorgement of alleged ill-gotten gains.

At the same time, the FTC and state of Ohio filed another enforcement action against one of the processor’s biggest clients based in Canada and the Dominican Republic.

Federal and state regulators have evidenced a willingness to both go after merchants that engage in unfair and deceptive practices that are injurious to consumers, as well as the payment processors that enable merchants to engage in such conduct.

© 2019 Hinch Newman LLP

Fore more FTC finance enforcement actions, see the National Law Review Financial Institutions & Banking law page.

NCUA Issues New Guidance to Credit Unions Which Permits Hemp Banking

On August 19, 2019, the chairman of the National Credit Union Association issued a letter with guidance to all credit unions.  Prior to August 19, hemp businesses had difficulty locating banks or other entities that would permit them to conduct normal merchant banking activities. That issue has, in part, been addressed by this letter of guidance. Questions remain, however, regarding many merchant services and whether FinCEN will issue a similar guidance.  In either event, banks or credit unions that bank with hemp businesses have numerous compliance obligations under the Bank Secrecy Act (BSA) and Anti-Money Laundering Act (AML).  It is important to make your banking institution aware of your business purpose to avoid the Suspicious Activity Reports (SAR) that could negatively impact your business operations.

According to Chairman Hood, “Credit unions need to be aware of the Federal, State and Indian Tribe laws and regulations that apply to any hemp-related businesses they serve. Credit unions that choose to serve hemp-related businesses in their field of membership need to understand the complexities and risks involved.

While it is generally a credit union’s business decision as to the types of permissible services and accounts to offer, credit unions must have a Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance program commensurate with the level of complexity and risks involved. In particular, credit unions need to incorporate the following into their BSA/AML policies, procedures, and systems:

  • Credit unions need to maintain appropriate due diligence procedures for hemp-related accounts and comply with BSA and AML requirements to file Suspicious Activity Reports (SARs) for any activity that appears to involve potential money laundering or illegal or suspicious activity. It is the NCUA’s understanding that SARs are not required to be filed for the activity of hemp-related businesses operating lawfully, provided the activity is not unusual for that business. Credit unions need to remain alert to any indication an account owner is involved in illicit activity or engaging in activity that is unusual for the business.

  • If a credit union serves hemp-related businesses lawfully operating under the 2014 Farm Bill pilot provisions, it is essential the credit union knows the state’s laws, regulations, and agreements under which each member that is a hemp-related business operates. For example, a credit union needs to know how to verify the member is part of the pilot program.  Credit unions also need to know how to adapt their ongoing due diligence and reporting approaches to any risks specific to participants in the pilot program.

  • When deciding whether to serve hemp-related businesses that may already be able to operate lawfully–those not dependent on the forthcoming USDA regulations and guidelines for hemp production–the credit union needs to first be familiar with any other federal and state laws and regulations that prohibit, restrict, or otherwise govern these businesses and their activity.  For example, a credit union needs to know if the business and the product(s) is lawful under federal and state law, and any relevant restrictions or requirements under which the business must operate.”

https://www.ncua.gov/newsroom/press-release/2019/ncua-releases-interim-guidance-serving-hemp-businesses

As the regulatory entities work through the changes in federal law, new rules and regulations are inevitable.  FinCEN, the FDA and TTB are expected to issue new regulations, although they do not appear to be on the horizon any time soon.  The SAFE Banking Act, STATE’s Act and other new federal legislation remain held up in committee.

© 2019 Dinsmore & Shohl LLP. All rights reserved.

For more on finance regulations, see the National Law Review Financial Institutions & Banking law page.

CFPB Decision on “GSE Patch” Revives Debate About Prudent Underwriting

The Consumer Financial Protection Bureau (CFPB) recently announced that it will allow the so-called “GSE patch” to expire in January 2021.[1] This patch permits Government-Sponsored Entities Fannie Mae and Freddie Mac to buy loans even though the borrower’s debt-to-income (“DTI”) ratio exceeds the standard limit of 43%.[2]

The CFPB’s decision revives a long-standing debate about what constitutes a creditworthy loan. By eliminating the patch, the DTI ratio of 43% will become an absolute rule, making any loans with higher DTI’s ineligible for GSE funding.[3]

This type of bright-line rule—focused on a single component of a loan—has already drawn criticism as myopic.[4] Some have pointed out that, based on recent studies, DTI alone is a poor predictor for default of prime and near-prime loans.[5] For example, in each year since 2011, the 90-day delinquency rate for loans with DTI ratios over 45% has actually been lower than that for loans with DTI ratios between 30% and 45%.[6]

In fact, some studies indicate that adequate compensating factors can completely offset any minimal increase in risk associated with a higher DTI.[7] Yet, under this new rule, a borrower with a 44% DTI cannot qualify for a GSE loan, notwithstanding any number of other positive factors in the loan file.

It is entirely possible that this new decision could harm consumers, contrary to the CFPB’s mandate to protect them. Barring “high” DTI borrowers from accessing GSE loans could, at best, force such borrowers to obtain more expensive and riskier products, and at worst, preclude such borrowers from qualifying for any product at all.[8] Over the last six years, more than 10% of GSE-backed loans have relied on the patch.[9] Eliminating the patch is also likely to have a disproportionately adverse effect on minorities and others living in underserved communities.[10]

The creditworthiness of a loan, we firmly believe, must be evaluated by considering the loan as a whole. Simply isolating one aspect of the loan file such as DTI does not necessarily provide a thorough understanding of the risk profile. Instead, one typically must consider many characteristics beyond DTI–such as credit score and history, LTV and CLTV, asset and cash reserves, type and length of employment, and many more–to assess whether a loan should qualify for credit.[11]

Simply put, a loan typically cannot be considered a “bad” loan simply because of one feature. Instead, as some lawyers and courts have colorfully put it, each loan is a “snowflake” that must be considered independently and holistically on its own merits.

[1] See, for example.

[2] The other criteria for a Qualifying Mortgage (QM) include: (1) a lack of negative amortization, interest-only, or balloon features; (2) fully-documented income verification; (3) a total of points and fees less than 3 percent of the loan amount; and (4) a fully amortized payment schedule no longer than 30 years, with a fixed rate for at least five years, and all principal, interest, taxes, insurance, and other assessments included. See “Qualified Mortgage Definition for HUD-Insured and Guaranteed Single-Family Mortgages,” 78 Fed. Reg., 75215 (December 11, 2013); “Loan Guaranty: Ability-to-Repay Standards and Qualified Mortgage Definition under the Truth in Lending Act,” 79 Fed. Reg., 26620 (May 9, 2014); “Single-Family Housing Guaranteed Loan Program,” 81 Fed. Reg., 26461 (May 3, 2016).

[3] This rigid model stands in stark contrast to the FHA, VA, and USDA, which have no maximum DTI requirement. See, at page 2.

[4] See, for example.

[5] Id. at page 1; see also, e.g., Richard Green, “The Trouble with DTI as an Underwriting Variable—and as an Overlay,” Richard’s Real Estate and Urban Economics Blog, December 7, 2016.

[6] See(see Table 2).

[7] See page 10 and footnote 33.

[8] Id. at page 7.

[9] Mortgage Rule (see Table 1).

[10] Mortgage GSE Patch.

[11] (see Table 2) (noting that credit scores and LTV ratios might predict default more accurately than DTI ratios).

© 2019 Bilzin Sumberg Baena Price & Axelrod LLP
This article was written by Kenneth Duvall and Philip R. Stein of Bilzin Sumberg.
For more CFPB regulation updates, see the National Law Review Financial Institutions & Banking Law page.

House Financial Services Committee Passes Credit Reporting Bills

Four bills dealing with credit reporting were passed last Thursday by the House Financial Services Committee.  While there has been bipartisan support for credit reporting reform, none of the bills received any Republican votes.

The bills, which are listed below, would make various amendments to the FCRA (Fair Credit Reporting Act), including those described below:

  • The “Improving Credit Reporting for All Consumers Act” would impose new requirements for conducting reinvestigations of consumer disputes and related standards, require consumer reporting agencies to create a webpage providing information about consumer dispute rights, require furnishers to retain records necessary to substantiate the accuracy and completeness of furnished information, create a right for consumers to appeal the results of a reinvestigation, prohibit automatic renewals of consumer reporting and credit scoring products and services, and require a credit scoring model to treat multiple inquiries for a credit report or credit score made in connection with certain consumer credit products within a 120-period as a single inquiry.
  • The “Restoring Unfairly Impaired Credit and Protecting Consumers Act” would shorten the time period during which adverse information can stay on a consumer report, require the expedited removal of fully paid or settled debts from consumer reports, impose restrictions on the reporting of information about medical debts, require a consumer reporting agency to remove adverse information relating to a private student loan where the CFPB has certified that the borrower has a valid “defraudment claim” with respect to the educational institution or career education program, allow victims of financial abuse to obtain a court order requiring the removal of adverse information, and prohibit a credit scoring model from taking into account in an adverse manner the consumer’s participation in certain credit restoration or rehabilitation programs or the absence of payment history for an existing account resulting from such participation.
  • The “Free Credit Scores for Consumers Act of 2019” would expand the information that must be given to consumers about credit scores, require nationwide consumer reporting agencies to provide a free credit score when providing a free annual consumer report requested by the consumer, and require free consumer reports and credit scores to be provided under certain circumstances.
  • The “Restricting Use of Credit Checks for Employment Decisions Act” would prohibit the use of consumer reports for most employment decisions other than where the person using the report is required by federal, state, or local law to obtain the report or the report is used in connection with a national security investigation.

The House Financial Services Committee is scheduled to mark up more bills dealing with credit reporting today.

 

Copyright © by Ballard Spahr LLP
For more financial legislation, please see the Financial Institutions & Banking page of the National Law Review.

Bombas Settles with NYAG Over Credit Card Data Breach

Modern sock maker, Bombas, recently settled with New York over a credit card breach, agreeing to pay $65,000 in penalties.  According to the NYAG, malicious code was injected into Bombas’ Magento ecommerce platform in 2014.  The company addressed the issue over the course of 2014 and early 2015, and according to the NYAG, determined that bad actors had accessed customer information (names, addresses and credit card numbers) of almost 40,000 people. While the company notified the payment card companies at the time, it concluded that it did not need to notify impacted individuals because the payment card companies “did not require a formal PFI or otherwise pursue the matter beyond basic questions.”

In 2018, Bombas updated its cyber program, causing it to “revisit” the incident, deciding to notify impacted individuals and attorneys general. The NYAG concluded that the company had delayed in providing notice in violation of New York breach notification law, which requires notification “in the most expedient time necessary.” In addition to the $65,000 penalty, the company has agreed to modify how it might handle potential future breaches. This includes conducting prompt and thorough investigations, as well as training for employees on how to handle potential data breach matters.

Putting it into Practice: This settlement is a reminder to companies to ensure that they have appropriate measures in place to investigate potential breaches, and understand their notification obligations.

 

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.
For more on financial breaches, please see the Financial Institutions & Banking page on the National Law Review.