Recently, the Consumer Financial Protection Bureau (CFPB or Bureau) submitted letters to senators in Connecticut and California supporting their proposals to prohibit medical debt reporting.

Continue Reading CFPB Backs Connecticut and California Bills to Prohibit Medical Debt Reporting

The Federal Trade Commission (FTC) and Connecticut Attorney General William Tong filed suit against auto dealer Manchester City Nissan (Manchester City), its owner, and several employees for allegedly deceiving consumers about the price of certified used cars, add-ons, and government fees. Filed January 4, the lawsuit was brought under the FTC Act and the Connecticut Unfair Trade Practices Act.

Continue Reading FTC and Connecticut AG File Suit Against Auto Dealer over Alleged “Junk Fees”

The Connecticut Banking Commissioner (Commissioner), acting through the Consumer Credit Division of the Department of Banking (the Division), conducted an investigation into the Law Offices of David M. Katz, discovering that in 2018 and 2019 the firm had engaged in in unlicensed collection activity involving about 10,000 Connecticut accounts with a total balance of $1.4 million. The firm allegedly collected about $81,000 of that amount.

As a result of the investigation, the Commissioner issued a temporary order to cease and desist, a notice of intent to issue order to cease and desist, a notice of intent to impose a civil penalty, and a notice of a right to a hearing. The Commissioner alleged in the order that the firm had acted as a consumer collection agency in Connecticut without a consumer collection agency license, in violation of § 36a-801(a) of the Connecticut General Statutes. The firm had 14 days to request a hearing, but failed to do so. The Commissioner then entered a final cease and desist order imposing a civil penalty of $100,000.

The named attorney for the firm then contacted the Division requesting that the Commissioner reconsider its final order and informing the Division that, due to extraordinary circumstances, the law office was no longer in business. The parties entered into a consent order vacating the final order and reducing the fine to $20,000. In entering the consent order, the firm represented that it had ceased all collection activity in Connecticut after receiving a letter from the Division in December 2019. The firm also represented that the alleged violations would not occur again in the future.

A copy of the consent order is available here.

As discussed here, on June 29, Connecticut Governor Ned Lamont signed SB 1033, An Act Concerning Various Revisions to the Banking Statutes, into law. Among other things, the bill: (1) raised the small loan limit from $15,000 to $50,000; (2) expanded the Small Loan Act (SLA) licensure requirement to cover certain brokering and facilitating activities; (3) codified a predominant economic interest test for determining the “true lender” in the SLA; (4) broadened the definition of small loan to include income sharing agreements (ISAs), refund anticipation loans, and pension advances; (5) limited the Annual Percentage Rate (APR) on loans of $5,000 to $50,000 to 25%; (6) redefined APR as an all-in APR calculated similarly to the federal Military Lending Act (MLA); and (7) expanded the definition of finance charge to essentially capture all fees and charges, including optional fees. The revised SLA goes into effect on October 1, 2023.

Continue Reading Connecticut Department of Banking Issues Guidance Expanding Small Loan Act to Cover Earned Wage Access Products

On June 29, Connecticut Governor Ned Lamont signed SB 1033, An Act Concerning Various Revisions to the Banking Statutes, into law. As discussed here, with this bill, Connecticut joins several other states that have set strict rate caps on consumer loans, including Illinois, New Mexico, Colorado, and California, and those that expressly provide for a predominant economic interest test for true lender purposes. The law will take effect on October 1, 2023.

Continue Reading Connecticut Banking Statutes Amendments Take Effect October 1

On June 28, Connecticut Governor Ned Lamont signed into law Senate Bill 1032 entitled An Act Requiring Certain Financing Disclosures, which requires certain providers of commercial financing to make various disclosures and requires providers and brokers to register. Connecticut now joins states like Utah, California, Georgia, New York, Florida, and Virginia (discussed here, here, here, here, here, and here) in requiring such disclosures.

Continue Reading Connecticut Becomes Latest State to Enact a Commercial Financing Disclosure and Registration Law

On April 19, the Superior Court of Connecticut issued an opinion affirming the Connecticut Department of Banking’s (DOB) decision to issue a $750,000 fine against a mortgage lender for allowing its unlicensed employees to engage in activities that required a license.

In 1st Alliance Lending, LLC (1st Alliance) v Department of Banking, 1st Alliance appealed the DOB’s decision arguing the department overstepped its authority. The now-defunct company was licensed by the DOB as a mortgage lender. In 2018, the DOB conducted a compliance audit of 1st Alliance.

The audit found:

  • Submission coordinators, who were not licensed as mortgage loan originators, were at times engaging in what may constitute licensed activity under the Connecticut Secure And Fair Enforcement (SAFE) Act.
  • 1st Alliance failed to provide adverse action notices as required under the Fair Credit Reporting Act (FCRA).
  • 1st Alliance required consumers to verify information related to their application prior to providing the required disclosures under Connecticut’s Truth in Lending Act.
  • 1st Alliance refused to comply with the DOB’s lawful investigatory subpoena.

1st Alliance appealed the decision to state trial court. Judicial review under state law is limited to whether there is substantial evidence in the administrative record to support the agency’s findings. The court found the “record contains substantial evidence that unlicensed employees of [1st Alliance] offered or negotiated terms of residential mortgages.” 1st Alliance admitted to multiple FCRA violations. Further, the court found “substantial evidence that it was [1st Alliance’s] practice or policy to require a purchase and sale agreement before [1st Alliance] would provide a loan estimate, thereby requiring consumers to commit to the purchase of a property before coming to an understanding of the loan costs.” Lastly, the court found that 1st Alliance refused to comply with the subpoena.

This is not the only action pending against 1st Alliance. On January 15, 2021, the Consumer Financial Protection Bureau announced it had filed a similar suit in Connecticut federal court alleging the company used unlicensed employees to engage in mortgage-origination activities and failed to provide adverse action notices in violation of FCRA.

On March 23, SB 1033, An Act Concerning Various Revisions to the Banking Statutes, was given a favorable report by the Legislative Commissioners’ Office and sent to the Connecticut Senate. With this bill, Connecticut hopes to join several other states that have set strict rate caps on consumer loans, including Illinois, New Mexico, Colorado and California, and those that expressly provide for a predominant economic interest test for true lender purposes.

Among other things, the bill proposes to: 1) raise the small loan limit from $15,000 to $50,000; 2) expand the Small Loan Act (SLA) licensure requirement to cover certain brokering and facilitating activities; 3) codify a predominant economic interest test in the SLA; 4) broaden the definition of small loan to include income sharing agreements (ISAs), refund anticipation loans, and pension advances; 5) limit the APR on loans of $5,000 to $50,000 to 25%; 6) redefine APR as an all-in APR calculated pursuant to the federal Military Lending Act (MLA); and 7) define finance charge more broadly.

The proposals to raise the small loan limit to $50,000 and revise definitions appear intended to capture a variety of quasi-credit products, such as contingent obligations, and fintech providers that facilitate bank program loans. SB 1033 is sponsored by the House Banking Committee and, if passed, would take effect on October 1, 2023.

The proposal also includes requirements for:

  • Service Provider/Agent Licensing. Requires additional persons to obtain small loan licenses. Specifically, even if a person would otherwise be exempt under the Connecticut General Banking Statute the proposed bill would require licensure for any person who:
    • Holds, acquires or maintains, directly or indirectly, the predominant economic interest in a small loan;
    • Markets, brokers, arranges or facilitates the loan and holds the right, requirement or first right of refusal to purchase the small loans, receivables or interests; or
    • The totality of the circumstances indicate that such person is the lender and the transaction is structured to evade the SLA. In evaluating the totality of the circumstances, the regulator would consider whether the entity:
      • Indemnifies, insures or protects exempt persons for costs or risks related to the small loan;
      • Predominantly designs, controls or operates a small loan program; or
      • Purports to act as an agent/service provider for an exempt person in Connecticut while acting as a direct lender in another state.
  • Vehicle Installment Contracts. Raises the limit for sales finance company’s installment contracts on vehicles (from $50,000 to $75,000) and equipment (from $16,000 to $25,000).
    • According to testimony from the Connecticut Department of Banking, raising these limits captures more consumers as prices have increased due to inflation.
  • Sales Finance Company. Redefines sales finance company to include receiving payments of principal and interest from a retail buyer under a retail installment contract or installment loan contract.
  • GAP Waivers. Defines guaranteed asset protection (GAP) waivers and allows consumers to cancel these agreements for full refunds or credits to balances owed upon cancellation.
  • Mortgage Lead Generators. Prohibits licensed mortgage professionals from engaging in the services of unlicensed lead generators and from assisting or aiding and abetting any person in the in the conduct of business as a lead generator unless they are licensed.

Troutman Pepper will continue to monitor developments in the proposed amendments.

On December 1, the Connecticut Department of Banking issued a cease and desist order to the Law Offices of David M. Katz mandating the law firm cease conducting collection activities in the state without a license. The law firm was also fined $100,000, the maximum allowed by law.

Earlier this year, the Department of Banking issued a temporary order to cease and desist which stated:

  • That the Department of Banking had received a list of 9,788 Connecticut debtor accounts that were referred to the law firm between July 1, 2018 and June 30, 2019. The total balance of the accounts equaled $1,380,996, and total amount collected on the accounts by the law firm was $80,709.62.
  • That the Department of Banking had received a copy of the collection agreement, which described terms and conditions with relation to the accounts placed with the law firm.
  • The law firm’s collection activities consisted of sending letters and contacting Connecticut debtors by telephone, as well as weekly reporting.
  • The conduct required a Connecticut debt collection license, but the law firm failed to have one.

Concurrently, with the issuance of the temporary cease and desist order, the Department of Banking issued a notice of intent to issue a permanent cease and desist order. The law firm had 14 days to respond to the notice and request a hearing. The law firm failed to respond within the prescribed time, resulting in the above-mentioned December 1 cease and desist order.

On May 4, the Connecticut Banking Commissioner issued a temporary order to cease and desist and order to make restitution against lead generator SoLo Funds Inc. (SoLo) for allegedly engaging in unfair, deceptive, and abusive acts and practices (UDAAPs) in violation of the Consumer Financial Protection Act of 2010, as well as for operating in Connecticut without a small loan company license or a consumer collection agency license.

The enforcement action states that SoLo advertised via its website and mobile application that it assists Connecticut consumers in receiving loans in amounts ranging from $50 to $500. The loans are initiated by a request from a consumer of a certain loan amount and include a proposed monetary tip. The action states that SoLo encourages customers to “offer: (i) a Lender Tip in an amount of up to 12% of the loan amount, and (ii) a SoLo Tip of up to 9% of the loan amount.” Various additional advertisements encouraged the borrower to tip. While SoLo states a tip is not required to receive a loan, “100% of the loans to Connecticut residents originated on the Platform from June 2018 to August 2021 either contained a Lender Tip or a SoLo Tip.”

Upon loan consummation, a lender is required to pay SoLo any tip given to SoLo on behalf of the consumer prior to the lender receiving any money from the borrower and regardless of whether the loan is paid back. On the loan’s due date, the total loan amount, including all tips, is withdrawn via debit entry from the borrower’s account by the lender.

The commissioner stated that tips made by consumers were incident to or conditions of the extension of credit and should be included in the annual percentage rate (APR) under Regulation Z. However, beginning in April 2021, SoLo issued loan disclosures and promissory notes without itemizing tips and did not provide any disclosures regarding such tips. The only loan amount disclosed was the principal loan amount. As such, “promissory notes to Connecticut borrowers failed to indicate any obligation of the borrower to pay tips on their loans and corresponding Loan Disclosures stated that only one payment, for the principal loan amount, was due at the end of the loan.” The commissioner concluded that this lack of disclosures violated the Consumer Financial Protection Act of 2010 regarding unfair, deceptive, and abusive practices.

In addition to ordering SoLo to cease and desist from providing borrowers with false and misleading information about its loans, SoLo also must repay any amounts received from Connecticut residents in connection with a loan, plus interest.

SoLo may request a hearing; otherwise, the allegations will be deemed admitted, and the order will remain in effect and become permanent.