OCC Issues Final Rule on Permissible Interest on Transferred Loans
By Lynette I. Hotchkiss, McGlinchey Stafford, PLLC
On May 29, 2020, the Office of the Comptroller of the Currency (“OCC”) issued a final rule to clarify that when a bank sells, assigns, or otherwise transfers a loan, the interest rate that was permissible before the transfer is not affected by the transfer. The OCC issued this rule to clarify the legal uncertainty created by recent developments, including the decision by the U.S. Court of Appeals for the Second Circuit in Madden v. Midland Funding, in which the court held that a purchaser of a loan originated by a national bank could not charge interest at the rate permitted for the national bank if that rate was not permitted under a usury cap applicable to the purchaser. The final rule reaffirms the “long-standing understanding that a bank may transfer a loan without affecting the permissible interest term.” The rule applies to all national banks and state and federal savings associations and will take effect 60 days after publication in the Federal Register.
Treasury Releases Application for New Nonbank Lenders Under Paycheck Protection Program
By Catherine M. Brennan, Hudson Cook, LLP
The U.S. Department of Treasury has released its application to enable non-depository companies and service providers to banks to become a lender under the Paycheck Protection Program ("PPP"). Under the Interim Final Rule, any depository or non-depository financing provider that originates, maintains, and services business loans or other commercial financial receivables and participation interests, has a formalized compliance program, and applies the requirements under the Bank Secrecy Act requirements of an equivalent federally regulated financial institution can become a PPP lender so long as the applicant has been operating since at least February 15, 2019, and has originated, maintained, and serviced more than $50 million in business loans or other commercial financial receivables during a consecutive 12-month period in the past 36 months.
Additionally, the Interim Final Rule allows any service provider to an insured depository institution that has a contract to support that institution's lending activities in accordance with the Bank Service Company Act to become a lender, so long as the service provider and bank are in good standing with the appropriate federal banking agency. Lenders are entitled to fees from the SBA, on a tiered scale, for each loan.
Federal Reserve Board Expands Liquidity Facility for Paycheck Protection Program
By Lynette I. Hotchkiss, McGlinchey Stafford, PLLC
On April 30, 2020, the Federal Reserve expanded access to its Paycheck Protection Program Liquidity Facility (PPPLF). Under this expanded access, all Paycheck Protection Program (“PPP”) lenders approved by the SBA, including non-depository institution lenders, are eligible to participate in the PPPLF. In addition, eligible borrowers will be able to pledge whole PPP loans that they have purchased as collateral to the PPPLF, but will need to provide the Reserve Bank with documentation from the SBA showing that the pledging institution is the beneficiary of the SBA guarantee for the purchased loan.
Preliminary Injunction Prohibits Enforcement of Portions of Massachusetts Emergency Debt Collection Regulation
By Shanna M. Boughton and Patrick T. Voke, McGlinchey Stafford, PLLC
On May 6, 2020, U.S. District Court Judge Richard Stearns entered a TRO temporarily enjoining Massachusetts Attorney General Maura Healey from enforcing emergency regulation 940 CMR 35.00. The regulation, promulgated in connection with the COVID-19 state of emergency, prohibited certain debt collection activities, including debt collection calls, for a period of 90 days beginning on March 26, 2020.
The TRO was set to expire on May 21, 2020. On May 20, 2020, ACA International filed a Motion for Clarification requesting that Judge Stearns clarify whether he had intended to grant a preliminary injunction along with the TRO. On May 21, 2020, Judge Stearns granted the Motion for Clarification, confirming that he intended to grant a preliminary injunction as well as the TRO with his prior order. This means that the emergency regulation’s prohibition against debt collection calls in Massachusetts will remain unenforceable for the duration of the regulation period unless the Attorney General successfully moves to dissolve the preliminary injunction. Accordingly, debt collectors may continue or resume debt collection actions in Massachusetts Courts and debt collection calls as long as they otherwise comply with existing Massachusetts and federal debt collection statutes and regulations.
It should be noted that the TRO and preliminary injunction do not affect those portions of the emergency regulation banning self-help repossession. Self-help auto repossessions remain prohibited until the expiration of the emergency regulation on June 24, 2020 unless the regulation is extended beyond that date by the Attorney General.
COVID-19 Foreclosure and Eviction Moratoria Status
By Joseph A. Apatov, McGlinchey Stafford, PLLC
The CARES Act foreclosure moratorium for federally backed mortgage loans expired on May 17, 2020. However, for the vast majority of federally backed mortgage loans, there remains a foreclosure and eviction moratorium through June 30, 2020:
- FHFA (Fannie Mae and Freddie Mac): The FHFA announced that Fannie Mae and Freddie Mac are extending their moratorium on foreclosures and evictions until at least June 30, 2020.
- FHA: HUD issued Mortgage Letter 2020-13 which extends through June 30, 2020 the moratorium on evictions and initiation of foreclosures and foreclosures in process for FHA-insured Single Family mortgages.
- USDA: The USDA announced that its foreclosure and eviction moratorium is extended until June 30, 2020.
- VA: The VA announced that its foreclosure moratorium is extended until June 30, 2020.
It will remain important to monitor directives from these agencies as June 30 approaches as there is a reasonable likelihood that the moratoria may be extended again. Mortgage servicers considering proceeding with a foreclosure or eviction action on a loan regulated, insured or guaranteed by an entity other than those listed above should confirm whether restrictions remain in place before deciding whether to proceed with a particular course of action. Also, there are a number of state and local moratoria still in place that must be considered before proceeding.
Bureau Outlines Responsibilities of Financial Firms During Pandemic
Eric Mogilnicki & Lucy Bartholomew, Covington & Burling LLP
On May 13, 2020, the CFPB released a statement and FAQs outlining the responsibility of financial firms during the pandemic. In the statement, the Bureau outlines the billing error responsibilities of credit card issuers and other open-end non-home secured creditors during the COVID-19 pandemic. Additionally, the Bureau encourages financial firms to continue to provide assistance to their communities, such as waiving fees, lowering minimum-balance requirements, and implementing changes in account terms that benefit consumers.
The Bureau also released two FAQ documents. First, the Bureau issued FAQs to remind providers of checking, savings, or prepaid accounts that they can offer consumers immediate relief by changing account terms without advance notice where the change in terms is clearly favorable to the consumer. For example, the Bureau explains that an institution may eliminate transfer fees on savings accounts without providing advance notice. Second, the Bureau issued FAQs regarding existing regulatory flexibility regarding open-end credit that may be used for assisting customers. For example, the Bureau notes that there is no advance notice requirement should a creditor choose to extend a credit card account’s grace period.
In addition, the Bureau released a statement on Supervisory and Enforcement Practices Regarding Regulation Z Billing Error Resolution Timeframes in Light of the COVID-19 Pandemic. The Bureau recognizes that the COVID-19 pandemic has created significant operational disruptions in the investigation of potential billing errors. Accordingly, the Bureau will take a flexible supervisory and enforcement approach during the pandemic regarding the timeframe within which creditors complete their investigations of consumers’ billing error notices. In particular, the Bureau does not intend to cite a violation in an examination or bring an enforcement action against a creditor that has made good faith efforts to obtain the necessary information and make a determination as quickly as possible, and that complies with all other requirements pending resolution of the error.
The CFPB Issues Final Remittance Rule
By Eric Mogilnicki & Lucy Bartholomew, Covington & Burling LLP
On May 11, 2020, the CFPB issued a final rule covering remittances transfers. The Remittance Rule imposes requirements on entities that send international money transfers, or remittance transfers, on behalf of consumers. Among its requirements, the Rule mandates that remittance transfer providers generally must disclose the exact exchange rate, the amount of certain fees, and the amount expected to be delivered to the recipient. The Rule also allows for depository institutions to estimate certain fees and exchange rate information under certain circumstances (but, by statute, this provision expires in July 2020). The final rule allows banks and credit unions to continue to provide estimates of the exchange rate and certain fees under certain conditions. The final rule also increases the threshold, so that entities making 500 or fewer transfers annually in the current and prior calendar years would not be subject to the Rule. The Remittance Rule is available here.
Bureau Releases FAQs to Clarify Application of Regulation B to PPP Loans
By Eric Mogilnicki & Cody Gaffney, Covington & Burling LLP
On May 6, 2020, the CFPB released a short series of FAQs to clarify the application of the Equal Credit Opportunity Act and Regulation B to the Paycheck Protection Program (“PPP”). Under Regulation B, a creditor is generally required to provide a notice to a loan applicant within 30 days of receiving a completed application indicating the creditor’s approval, counteroffer, denial, or any other adverse action regarding the application. The FAQs clarify that a PPP loan application is only considered complete for purposes of Regulation B when the loan has received a loan number from the Small Business Administration (the “SBA”) or when the creditor has received a response from the SBA regarding the availability of funds; thus, the time spent waiting for this information from the SBA does not count toward the 30-day notice requirement. However, if a creditor denies an application without sending the application to the SBA, the creditor must give notice of this adverse action within 30 days. Finally, the FAQs clarify that a creditor cannot deny a report application based on incompleteness where the creditor has enough information from the applicant for a credit decision, but has yet to receive information from the SBA (including a loan number or a response about the availability of funds).