OCC Approves First “All-Mobile”​ Bank Charter

The Office of the Comptroller of the Currency recently gave conditional approval to a national bank charter applicant that plans to offer traditional bank products and services exclusively through mobile, online, and phone-based channels. The bank, Varo Bank, N.A., will be headquartered in Salt Lake City, Utah, and will not have any branches or deposit-taking ATMs. The bank intends to have a nationwide footprint, however, based on its digital delivery system.

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FTC Lawsuit Highlights the Importance of Accuracy in Online Loan Advertising and Application Process

A lawsuit filed on April 25th by the Federal Trade Commission (“FTC”) against LendingClub Corporation (“LendingClub”) shows how promotional language used in attracting online borrowers can get a company in legal trouble if misleading or inaccurate. The FTC’s complaint alleges that LendingClub promised “no hidden fees” in print and online advertising, yet deducted an up-front fee before disbursing loan funds to borrowers. The FTC’s lawsuit also examines in detail the various pop-up bubbles and other features that the online loan platform used in the application process to disclose fees, noting that a consumer was unlikely to learn of the existence of the fees based on how such pop-up bubbles and other features worked. The FTC further claims that the online loan platform misled loan applicants about loan approval through statements sent to the applicants, such as, “Hooray! Investors Have Backed Your Loan,” when it knew many of these applicants would never receive a loan. 

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Online Lending Legislation Fails in the 2018 Virginia General Assembly

A bill (HB 1248) to require online lenders to obtain a consumer finance company license to offer installment loans to Virginia consumers failed to advance in House of Delegates this session. Another bill (SB 625) that would have restricted the interest rate on such loans to no more than 36% likewise stalled in the House after passing the Senate with strong support.

HB 1248, introduced by Delegate Terry Kilgore (R-Gate City), the Chairman of the House Commerce and Labor Committee, represented the work of a study group comprised of industry and government representatives appointed by the Virginia Bureau of Financial Institutions. The bill reflected the consensus views of the study group and would have established a licensing and regulatory framework for online lenders, without offices in the state, to offer installment loans to consumers here. Current Virginia law – adopted long before the advent of the Internet – contemplates the issuance of a license for each physical location in Virginia from which loans are offered. As such, the Bureau will not issue a license to an online lender with no office in the Commonwealth.

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Virginia Senate Committee Approves 36% Cap on Consumer Installment Loans

On January 29th, the Virginia Senate Commerce and Labor Committee approved legislation (SB 625) that would restrict the annual interest rate on all installment loans offered by consumer finance companies to no more than 36%. Under Virginia’s current consumer finance company statute, only loans of $2,500 or less are subject to a 36% annual interest rate restriction. For loans over $2,500, there is no restriction and a consumer finance company may charge interest at a rate established by contract. Thus, the bill would take the existing 36% cap – applicable only to loans of $2,500 or less – and extend it to all installment loans that consumer finance companies would be authorized to make, which the bill identifies as loans between $500 and $35,000.

The patron of the bill, Senator Scott Surovell (D-Fairfax), along with bill supporters, testified in committee that the interest rate cap is necessary to curb abuses by online lenders. The bill includes other provisions addressing how interest must be calculated, permissible fees, and restrictions on a consumer finance company’s ability to conduct certain other loan activities.  Somewhat similar legislation was introduced last year in California (AB 784/AB 11109) and Maryland (SB 527/HB 1270).

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CFPB Signals Retreat from Aggressive Regulation

The Consumer Financial Protection Bureau (“CFPB”) made significant announcements on January 16th and 17th reflecting a shift to a more industry-friendly regulatory approach under Trump-appointed acting director Mick Mulvaney. The CFPB is reconsidering existing rules and policies put in place under the previous CFPB director, Richard Cordray, with an eye toward rolling back burdensome rules and aggressive enforcement policies.

In its January 16th announcement, the CFPB said it will commence a rulemaking process to reconsider the so-called “Payday Loan Rule.” The Payday Loan Rule imposes new restrictions on payday, vehicle title, and certain installment loans under the CFPB’s authority to curb unfair, deceptive, or abusive acts or practices. The Payday Loan Rule has been heavily criticized by the small loan industry which says the rule will restrict consumers’ access to credit. The CFPB’s January 16th announcement coincides with the effective date of the Payday Loan Rule’s codification in the Code of Federal Regulations. But most of the provisions of the rule will not require compliance until August 19, 2019. The CFPB’s reconsideration process could result in the unwinding of the rule before that date.

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Virginia Bureau of Financial Institutions Reports to General Assembly on Internet Lending Study and Plans for Legislation in the 2018 Session

The Virginia Bureau of Financial Institutions (the “Bureau”) recently sent members of the House and Senate Commerce and Labor Committees a letter reporting on the work of the legislative working group that met this year at the request of the legislature to examine issues related to consumer finance companies, internet lending, and open-end credit lenders. The letter states that the Bureau plans to develop proposed legislation for the 2018 session convening in January based on the study group meetings.

The key takeaways from the Bureau’s letter are as follows:

  1. The Bureau states that a “vast majority” of the study group members appeared supportive of requiring “out-of-state consumer finance companies” to be licensed and regulated under Virginia law. Thus, the Bureau’s legislation will likely include such licensing and regulatory provisions.
  2. The Bureau notes that there was no consensus for licensing open-end credit lenders. Currently, lenders offering open-end credit to Virginia consumers may do so without a license and little regulation, whether the lender is located in Virginia or outside the state. Because of opposition expressed in the study group to any change in current law on open-end credit, it would appear that this issue is unlikely to be addressed in the Bureau’s legislation.
  3. The Bureau further notes that while there was general consensus in support of “modernizing” the consumer finance company statutes in a number of places to conform to recent enactments in the titles governing payday lending and motor vehicle lending, there was not “significant support” for adding consumer protection protections found in those titles to the consumer finance company statutes.

Of course, the devil is always in the details, so we will have to wait to see the actual legislation to determine how lenders might be impacted. The Bureau’s legislation will likely be introduced sometime in December. We will report here on the details when it is.

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Virginia Study on Internet Lending Concludes

The working group of the Virginia Bureau of Financial Institutions (the “Bureau”), which was established to consider potential legislation for the licensing and supervision of online lenders, held its last meeting on September 14th. The Bureau will now prepare a report, possibly with proposed legislation, to submit to the Virginia General Assembly for its consideration in the 2018 session.

At the September 14th meeting, it was established that there is consensus (no opposition) among the working group members to recommending legislation to amend Virginia’s consumer finance company statutes to require the licensing of online lenders and to subject such lenders to the same supervision by the Bureau that exists today for Virginia consumer finance companies with physical office locations in the state. The enactment of such legislation would mean that out-of-state online lenders making closed-end loans to Virginia consumers would have to obtain a license and comply with the other requirements of the consumer finance statutes. Currently, out-of-state lenders are not able to obtain such a license because the licensing provisions in the law contemplate a physical office location in Virginia. This has created uncertainty for online lenders.

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Virginia Study Group Considers Licensing and Supervision of Internet Lenders at Second Meeting

The working group of the Virginia Bureau of Financial Institutions (the “Bureau”), which was established at the direction of the Virginia General Assembly to consider potential legislation to regulate internet lending, held its second meeting on July 15th. The focus of the group is primarily on online closed-end and open-end loans made by non-depository lenders, particularly out-of-state lenders.  Such lenders are not subject to the licensing and other requirements under Virginia’s current consumer finance statutes.

At the outset of the meeting, representatives from both the Bureau and the Virginia Attorney General’s office expressed their view that all non-depository lenders making loans to Virginia consumers should operate under the same Virginia statutory provisions, whether they make such loans from a physical location in Virginia or over the internet. They do not believe a separate statutory section for online lending is advisable, as had been suggested at the working group’s first meeting.  The working group was in agreement with the Bureau and the Attorney General’s office on this point.

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Virginia Bureau of Financial Institutions to Study Internet Lending Issues for Legislative Recommendations

The 2017 Virginia General Assembly tabled a number of bills (HB 1443, HB 1817, HB 2310, HB 2310, HB 2445, and SB 1126) dealing with consumer finance companies, Internet lenders, and open-end credit with the understanding that the issues raised in such bills would be studied by a working group of the Virginia Bureau of Financial Institutions this year. The Bureau study group is tasked with making legislative recommendations for consideration by the Virginia General Assembly in its 2018 session, which convenes in January.

The Bureau study will give particular attention to the licensing and supervision of Internet lenders making loans to Virginia residents. The Bureau has expressed concern that the current Virginia statutes governing consumer finance are outdated, and that given the proliferation of Internet lending modernization of such statutes is warranted. LeClairRyan will be closely involved with the activities of the Bureau study.

 

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Virginia General Assembly to Consider Legislation Impacting Online Lending in 2017 Session

Loans on Ring Binder. Blured, Toned Image.Legislation affecting online lending will be among the bills the 2017 Virginia General Assembly considers when it convenes on January 11th for its regular session. Delegate Peter Farrell has prefiled two bills that would impose new licensing requirements and fee limitations on such loans. Similar bills are expected to be introduced by other members of the General Assembly. These measures have the support of the Virginia Bureau of Financial Institutions (the “Bureau”), the Virginia Attorney General’s office, and Legal Aid organizations, among others.

With respect to Delegate Farrell’s bills, HB 1443 would subject any lender making consumer loans over the Internet to Virginia residents to the requirements of Virginia’s Consumer Finance Company Act (“Consumer Finance Act”), whether or not such lender has a physical presence in Virginia. Currently, the law applies only to those making loans from a physical location in Virginia. If the bill is enacted, online lenders would have to obtain a license from the Bureau and would be subject to an interest rate cap of 36% on loans under $2,500, among other things.

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