Beware of the new lending bubble

What is clear to me is that nothing has changed except the government complicity in predatory lending practices is increasing despite the passage of Dodd Frank. A fact that keeps getting buried here is that Federal Law (Truth in Lending Act) puts the burden of determining affordability of an alleged loan product on the lender, not the borrower. That is the whole point of the Act — to avoid mistakes that borrowers might make with sales pitches that will result in financial ruin for borrowers and extreme wealth for underwriters on Wall Street.

When you see “CashCall” offering loans to people who have a FICO score of 585, we all should ask “how can they make money on alleged loans that are going to fail.” Legally the question becomes one that scares the hell out of the banks: having given a loan to someone who needed their help in making the down payment and who have a bad credit history, is the defense to the foreclosure action properly stated if “assumption of risk” or some other related defense is asserted?

The additional question is who is putting up the money for national advertisements on TV, radio and written media to get as many people as possible to take a loan they cannot pay. This is especially true when an alleged adjustable rate mortgage is involved with negative amortization and a teaser payment.

If the burden of affordability is on the lender and not the borrower and the loan resets to a payment higher than the entire household income the outcome is guaranteed to produce a “loss” that will be covered by multiple levels of derivative and hedge products that will turn the loss into a windfall for the intermediaries.

The effect of the foreclosure is that it rubber stamps plainly illegal behavior. The good faith estimate is completely  fictitious. The term of the loan is not 30 years; it is 3 years or whenever the loan resets. That means whatever fees are amortized over the life of the loan should be amortized over 3 years, not 30. So the cost of credit is falsely stated.

And of course the primary directive of TILA that the lender be disclosed is being completely overlooked. CashCall is not lending the money in the sense that they have no risk of loss. The value of the loan to CashCall must be in the fees it receives for acting as a sham conduit.

I also doubt if the promissory notes executed by borrowers in such a situation are negotiable instruments, especially when you consider the possibility of TILA rescission, which is a condition not stated on the face of the note.Shows how securitization worked. Partially correct. BEST IN CLASS

I give the following video a 90%+ rating. It doesn’t cover the sham conduit originator but otherwise it appears totally correct.

Shows how securitization worked. Partially correct. BEST IN CLASS

Check this out:

No Savings? No Problem. These Companies Are Helping Home Buyers With Down Payments
The Wall Street Journal

Lenders are coming up with novel ways for buyers to cobble together down payments. Read the full story

Predominant Interest Defines “True Lender”

Based on the totality of the circumstances, the Court concludes that CashCall, not Western Sky, was the true lender. CashCall, and not Western Sky, placed its money at risk. It is undisputed that CashCall deposited enough money into a reserve account to fund two days of loans, calculated on the previous month’s daily average and that Western Sky used this money to fund consumer loans. It is also undisputed CashCall purchased all of Western Sky’s loans, and in fact paid Western Sky more for each loan than the amount actually financed by Western Sky. Moreover, CashCall guaranteed Western Sky a minimum payment of $100,000 per month, as well as a $10,000 monthly administrative fee. Although CashCall waited a minimum of three days after the funding of each loan before purchasing it, it is undisputed that CashCall purchased each and every loan before any payments on the loan had been made. CashCall assumed all economic risks and benefits of the loans immediately upon assignment. CashCall bore the risk of default as well as the regulatory risk. Indeed, CashCall agreed to “fully indemnify Western Sky Financial for all costs arising or resulting from any and all civil, criminal or administrative claims or actions, including but not limited to fines, costs, assessments and/or penalties . . . [and] all reasonable attorneys fees and legal costs associated with a defense of such claim or action.”

Accordingly, the Court concludes that the entire monetary burden and risk of the loan program was placed on CashCall, such that CashCall, and not Western Sky, had the predominant economic interest in the loans and was the “true lender” and real party in interest. [E.S.]

See 8-31-2016-cfpb-v-cash-call-us-dist-ct-cal

Federal District Court Judge John Walter appears to be the first Judge in the nation to drill down into the convoluted “rent-a-bank” (his term, not mine) schemes in which the true lender was hidden from borrowers who then executed documents in favor of an entity that was not in the business of lending them money. This decision hits the bulls eye on the importance of identifying the true lender. Instead of blindly applying legal presumptions under the worst conditions of trustworthiness, this Judge looked deeply at the flawed process by which the “real lender” was operating.

A close reading of this case opens the door to virtually everything I have been writing about on this blog for 10 years. The court also rejects the claim that the documents can force the court to accept the law or venue of another jurisdiction. But the main point is that the court rejected the claim that just because the transactions were papered over doesn’t mean that the paper meant anything. Although it deals with PayDay loans the facts and law are virtually identical to the scheme of “securitization fail” (coined by Adam Levitin).

Those of you who remember my writings about the step transaction doctrine and the single transaction doctrine can now see how substance triumphs over form. And the advice from Eric Holder, former Attorney General under Obama, has come back to mind. He said go after the individuals, not just the corporations. In this case, the Court found that the CFPB case had established liability for the individuals who were calling the shots.

SUMMARY of FACTS: CashCall was renting the name of two banks in order to escape appropriate regulation. When those banks came under pressure from the FDIC, CashCall changed the plan. They incorporated Western Sky on the reservation of an an Indian nation and then claimed they were not subject to normal regulation. This was important because they were charging interest rates over 100% on PayDay loans.

That fact re-introduces the reality of most ARM, teaser and reverse amortization loans — the loans were approved with full knowledge that once the loan reset the homeowner would not be able to afford the payments. That was the plan. Hence the length of the loan term was intentionally misstated which increases the API significantly when the fees, costs and charges are amortized over 6 months rather than 30 years.

Here are some of the salient quotes from the Court:

CashCall paid Western Sky the full amount disbursed to the borrower under the loan agreement plus a premium of 5.145% (either of the principal loan amount or the amount disbursed to the borrower). CashCall guaranteed Western Sky a minimum payment of $100,000 per month, as well as a $10,000 monthly administrative fee. Western Sky agreed to sell the loans to CashCall before any payments had been made by the borrowers. Accordingly, borrowers made all of their loan payments to CashCall, and did not make a single payment to Western Sky. Once Western Sky sold a loan to CashCall, all economic risks and benefits of the transaction passed to CashCall.

CashCall agreed to reimburse Western Sky for any repair, maintenance and update costs associated with Western Sky’s server. CashCall also reimbursed Western Sky for all of its marketing expenses and bank fees, and some, but not all, of its office and personnel costs. In addition, CashCall agreed to “fully indemnify Western Sky Financial for all costs arising or resulting from any and all civil, criminal or administrative claims or actions, including but not limited to fines, costs, assessments and/or penalties . . . [and] all reasonable attorneys fees and legal costs associated with a defense of such claim or action.”

Consumers applied for Western Sky loans by telephone or online. When Western Sky commenced operations, all telephone calls from prospective borrowers were routed to CashCall agents in California.

A borrower approved for a Western Sky loan would electronically sign the loan agreement on Western Sky’s website, which was hosted by CashCall’s servers in California. The loan proceeds would be transferred from Western Sky’s account to the borrower’s account. After a minimum of three days had passed, the borrower would receive a notice that the loan had been assigned to WS Funding, and that all payments on the loan should be made to CashCall as servicer. Charged-off loans were transferred to Delbert Services for collection.

“[t]he law of the state chosen by the parties to govern their contractual rights and duties will be applied, . . ., unless either (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.”
Restatement § 187(2). The Court concludes that the CRST choice-of-law provision fails both of these tests, and that the law of the borrowers’ home states applies to the loan agreements.

after reviewing all of the relevant case law and authorities cited by the parties, the Court agrees with the CFPB and concludes that it should look to the substance, not the form, of the transaction to identify the true lender. See Ubaldi v. SLM Corp., 852 F. Supp. 2d 1190, 1196 (N.D. Cal. 2012) (after conducting an extensive review of the relevant case law, noting that, “where a plaintiff has alleged that a national bank is the lender in name only, courts have generally looked to the real nature of the loan to determine whether a non-bank entity is the de facto lender”); Eastern v. American West Financial, 381 F.3d 948, 957 (9th Cir. 2004) (applying the de facto lender doctrine under Washington state law, recognizing that “Washington courts consistently look to the substance, not the form, of an allegedly usurious action”); CashCall, Inc. v. Morrisey, 2014 WL 2404300, at *14 (W.Va. May 30, 2014) (unpublished) (looking at the substance, not form, of the transaction to determine if the loan was usurious under West Virginia law); People ex rel. Spitzer v. Cty. Bank of Rehoboth Beach, Del., 846 N.Y.S.2d 436, 439 (N.Y. App. Div. 2007) (“It strikes us that we must look to the reality of the arrangement and not the written characterization that the parties seek to give it, much like Frank Lloyd Wright’s aphorism that “form follows function.”).4 “In short, [the Court] must determine whether an animal which looks like a duck, walks like a duck, and quacks like a duck, is in fact a duck.” In re Safeguard Self-Storage Trust, 2 F.3d 967, 970 (9th Cir. 1993). [Editor Note: This is akin to my pronouncement in 2007-2009 that the mortgages and notes were invalid because they might just as well have named Donald Duck as the payee, mortgagee or beneficiary. Naming a fictional character does not make it real.]

In identifying the true or de facto lender, courts generally consider the totality of the circumstances and apply a “predominant economic interest,” which examines which party or entity has the predominant economic interest in the transaction. See CashCall, Inc. v. Morrisey, 2014 WL 2404300, at *14 (W.D. Va. May 30, 2014) (affirming the lower court’s application of the “predominant economic interest” test to determine the true lender, which examines which party has the predominant economic interest in the loans); People ex rel. Spitzer v. Cty. Bank of Rehoboth Beach, Del., 846 N.Y.S.2d 436, 439 (N.Y. App. Div. 2007) (“Thus, an examination of the totality of the circumstances surrounding this type of business association must be used to determine who is the ‘true lender,’ with the key factor being ‘who had the predominant economic interest’ in the transactions.); cf. Ga. Code Ann. § 16-17-2(b)(4) (“A purported agent shall be considered a de facto lender if the entire circumstances of the transaction show that the purported agent holds, acquires, or maintains a predominant economic interest in the revenues generated by the loan.”).

Although a borrower electronically signed the loan agreement on Western Sky’s website, that website was, in fact, hosted by CashCall’s servers in California. While Western Sky performed loan origination functions on the Reservation, the Court finds these contacts are insufficient to establish that the CRST had a substantial relationship to the parties or the transaction, especially given that CashCall funded and purchased all of the loans and was the true lender. Cf. Ubaldi v. SLM Corp., 2013 WL 4015776, at *6 (N.D. Cal. Aug. 5, 2013) (“If Plaintiffs’ de facto lender allegations are true, then Oklahoma does not have a substantial relationship to Sallie Mae or Plaintiffs or the loans.”).

The Court concludes that the CFPB has established that the Western Sky loans are void or uncollectible under the laws of most of the Subject States.7 See CFPB’s Combined Statement of Facts [Docket No. 190] (“CFPB’s CSF”) at ¶¶ 147 – 235. Indeed, CashCall has admitted that the interest rates that it charged on Western Sky loans exceeded 80%, which substantially exceeds the maximum usury limits in Arkansas, Colorado, Minnesota, New Hampshire, New York, and North Carolina. (Arkansas’s usury limit is 17%; Colorado’s usury limit is 12%; Minnesota’s usury limit is 8%; New Hampshire’s usury limit is 36%; New York’s usury limit is 16%; and North Carolina’s usury limit is 8%). A violation of these usury laws either renders the loan agreement void or relieves the borrower of the obligation to pay the usurious charges. In addition, all but one of the sixteen Subject States (Arkansas) require consumer lenders to obtain a license before making loans to consumers who reside there. Lending without a license in these states renders the loan contract void and/or relieves the borrower of the obligation to pay certain charges. CashCall admits that, with the exception of New Mexico and Colorado, it did not hold a license to make loans in the Subject States during at least some of the relevant time periods.

Based on the undisputed facts, the Court concludes that CashCall and Delbert Services engaged in a deceptive practice prohibited by the CFPA. By servicing and collecting on Western Sky loans, CashCall and Delbert Services created the “net impression” that the loans were enforceable and that borrowers were obligated to repay the loans in accordance with the terms of their loan agreements. As discussed supra, that impression was patently false — the loan agreements were void and/or the borrowers were not obligated to pay.

The Court concludes that the false impression created by CashCall’s and Delbert Services’ conduct was likely to mislead consumers acting reasonably under the circumstances

The Court concludes that Reddam is individually liable under the CFPA.

“An individual may be liable for corporate violations if (1) he participated directly in the deceptive acts or had the authority to control them and (2) he had knowledge of the misrepresentations, was recklessly indifferent to the truth or falsity of the misrepresentation, or was aware of a high probability of fraud along with an intentional avoidance of the truth.” Consumer Fin. Prot. Bureau v. Gordon, 819 F.3d 1179, 1193 (9th Cir. 2016) (quotations and citations omitted).

The Court concludes that Reddam both participated directly in and had the authority to control CashCall’s and Delbert Services’ deceptive acts. Reddam is the founder, sole owner, and president of CashCall, the president of CashCall’s wholly-owned subsidiary WS Funding, and the founder, owner, and CEO of Delbert Services. He had the complete authority to approve CashCall’s agreement with Western Sky and, in fact, approved CashCall’s purchase of the Western Sky loans. He signed both the Assignment Agreement and the Service Agreement on behalf of WS Funding and CashCall. In addition, as a key member of CashCall’s executive team, he had the authority to decide whether and when to transfer delinquent CashCall loans to Delbert Services.

 

So all that said, here is what I wrote to someone who was requesting my opinion: Don’t use this unless and until you (a) match up the facts and (b) confer with counsel:

Debtor initially reported that the property was secured because of (a) claims made by certain parties and (b) the lack of evidence to suggest or believe that the property was not secured. Based upon current information and a continuous flow of new information it is apparent that the originator who was named on the note and deed of trust in fact did not loan any money to petitioner. This is also true as to the party who would be advanced as the “table funded” lender. As the debtor understands the applicable law, if the originator did not actually complete the alleged loan contract by actually making a loan of money, the executed note and mortgage should never have been released, much less recorded. A note and mortgage should have been executed in favor of the “true lender” (see attached case) and NOT the originator, who merely served as a conduit or the conduit who provided the money to the closing table.

Based upon current information, debtor’s narrative of the case is as follows:

  1. an investment bank fabricated documents creating the illusion of a proprietary common law entity
  2. the investment bank used the form of a trust to fabricate the illusion of the common law entity
  3. the investment bank named itself as the party in control under the label “Master Servicer”
  4. the investment bank then created the illusion of mortgage backed securities issued by the proprietary entity named in the fabricated documents
  5. the investment bank then sold these securities under various false pretenses. Only one of those false pretenses appears relevant to the matter at hand — that the proceeds of sale of those “securities” would be used to fund the “Trust” who would then acquire existing mortgage loans. In fact, the “Trust” never became active, never had a bank account, and never had any assets, liabilities or business. The duties of the Trustee never arose because there was nothing in the Trust. Without a res, there is no trust nor any duties to enforce against or by the named “Trustee.”
  6. the investment bank then fabricated documents that appeared facially valid leading to the false conclusion that the Trust acquired loans, including the Petitioner’s loan. Without assets, this was impossible. None of the documents provided by these parties show any such purchase and sale transaction nor any circumstances in which money exchanged hands, making the Trust the owner of the loans. Hence the Trust certainly does not own the subject loan and has no right to enforce or service the loan without naming an alternative creditor who does have ownership of the debt (the note and mortgage being void for lack of completion of the loan contract) and who has entered into a servicing agreement apart from the Trust documents, which don’t apply because the Trust entity was ignored by the parties seeking now to use it.
  7. The money from investors was diverted from the Trusts who issued the “mortgage backed securities” to what is known as a “dynamic dark pool.” Such a pool is characterized by the inability to select both depositors and beneficiaries of withdrawal. It is dynamic because at all relevant times, money was being deposited and money was being withdrawn, all at the direction of the investment bank.
  8. What was originally perceived as a loan from the originator was in fact something else, although putting a label to it is difficult because of the complexity and convolutions used by the investment bank and all of its conduits and intermediaries. The dark pool was not an entity in any legals sense, although it was under the control of the investment bank.
  9. Hence the real chain of events for the money trail is that the investment bank diverted funds from its propriety trust and used part of the funds from investors to fund residential mortgage loans. The document trail is very different because the originator and the conduits behind what might be claimed a “table funded loan” were not in privity with either the investors or the investment bank. Hence it is clear that some liability arose in which the Petitioner owed somebody money at the time that the Petitioner received money or the benefits of money paid on behalf of the Petitioner. That liability might be framed in equity or at law. But in all events the mortgage or deed of trust was executed by the Petitioner by way of false representations about the identity of the lender and false representations regarding the compensation received by all parties, named or not,
  10. The current parties seek to enforce the deed of trust on the false premise that they have derived ownership of the debt, loan, note or mortgage (deed of trust). Their chain is wholly dependent upon whether the originator actually completed the loan contract by loaning the money to the Petitioner. That did not happen; thus the various illusions created by endorsements and assignments convey nothign because the note and mortgage (deed of trust) were in fact void. They were void because the debt was never owned by the originator. hence the signing of the note makes it impossible to merge the debt with the note — an essential part of making the note a legally enforceable negotiable instrument. The mortgage securing performance under the note is equally void since it secures performance of a void instrument. Hence the property is unsecured, even if there is a “John Doe” liability for unjust enrichment, if the creditor can be identified.
  11. The entire thrust of the claims of certain self-proclaimed creditors rests upon reliance on legal presumptions attached to facially valid documents. These same entities have been repeatedly sanctioned, fined and ordered to correct their foreclosure procedures which they have failed and refused to do — because the current process is designed to compound the original theft of investors’ money with the current theft of the debt itself and the subsequent theft of the house, free from claims of either the investors or the homeowner. The investment bank and the myriad of entities that are circulated as if they had powers or rights over the loan, is seeking in this case, as in all other cases in which it has been involved, to get a court judgment or any order that says they own the debt and have the right to enforce the evidence of the debt (note and mortgage).
  12. A Judgment or forced sale is the first legal document in their entire chain of fabricated documentation; but the entry of such a document in public records, creates the presumption, perhaps the conclusive presumption that all prior acts were valid. It is the first document that actually has a legal basis for being in existence. This explains the sharp decline in “workouts’ which have dominated the handling of distressed properties for centuries. Workouts don’t solve the problem for those who have been acting illegally. They must pursue a court order or judgment that appears to ratify all prior activities, legal or not.

 

The True Lender Issue May Be An Open Door Now

THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

—————-

In an article published by Morgan, Lewis & Bockius LLP, it appears that the evasive true lender argument received new life in an ancillary proceeding before a Federal District Judge in California. By holding that a tribal bank originating loans for a non-bank lender was not a “true lender.” The effects on foreclosure litigation are obvious. Most loans were originated by parties acting not as banks but as sales organizations or mortgage brokers. The money came from an entity created to mask the fact that the funding for the loan came from a dark pool of investor money instead of either a bank lender or a non bank lender. Hence the “table-funded” lender was not a lender any more than the originator.

In this case the finding of the court means that usury laws apply which might be something to look at especially in adjustable rate mortgage loan papers executed in favor of a non-lender who was acting on behalf of a non-lender and certainly nobody in the alleged chain was acting in its capacity as a bank lender unless they actually made the loan. remedies for usury law violations range widely among the states. In some, the remedy is loss of the debt and three times the debt in statutory damages.

The most important part of this decision as I see it is that if a party has no risk or money in the loan, then it is not a lender.

The ultimate effect of this decision might well bring down the foreclosure marketplace. If the originator and the party behind the curtain were not bank lenders, then they might not be lenders at all. Hence transfers from parties who were neither bank lenders nor nonbank lenders might have stumbled into the ultimate argument that the loan contract was never consummated.

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. Or call 202-838-6345

California Court Weighs in on “True Lender” Issue as CFPB Expands its UDAAP Enforcement Authority

Thursday, September 8, 2016

In a significant decision, on August 31, the US District Court for the Central District of California held that a tribal bank originating loans for a non-bank lender was not the “true lender”—making the loans subject to state usury limits.

Background

In December 2013, the Consumer Financial Protection Bureau (CFPB) commenced litigation against CashCall (a payday lender in a partnership with a tribal bank) and other defendants, claiming that they had violated the federal law prohibition on unfair, deceptive, or abusive acts or practices (UDAAP) for financial services providers by servicing and collecting on loans that were wholly or partially void or uncollectible under state law.

The CFPB alleged that

  • CashCall (a non-bank payday lender) and not the tribal bank that partnered with CashCall was the “true lender” because only CashCall had money at risk;
  • there was no reasonable basis for the choice of tribal law as the governing law for the loan contract and, therefore, in the absence of an effective contractual choice-of-law provision, the law of the borrower’s state governed the contracts;
  • because the loan contracts charged interest rates in excess of the usury limits in the sixteen states identified by the CFPB, the contracts were wholly or partially void and/or uncollectible under applicable state law in those states;
  • therefore, by collecting on the loan contracts and attempting to collect on the same, CashCall’s actions were deceptive and violated the federal UDAAP statute.

The court granted the CFPB’s motion for partial summary judgment on all four elements of its liability theory.

This case is the latest in a number of cases brought against CashCall that have raised “true lender” questions and have caused uncertainty for marketplace lending and other non-bank lenders that use a bank partnership model for the origination of consumer loans. However, the court’s decision is particularly significant for a number of reasons, most notably the following:

  • The CFPB’s argument that a state law violation can be a predicate for a federal UDAAP violation represents a significant potential expansion of the agency’s authority. As the court noted, state law violations have been used, with some limitations, as predicates for finding deceptive practices violations of the Fair Debt Collection Practices Act’s prohibitions against misrepresenting the “legal status” (that is, the collectability) of a debt, which often depends on state law, but this appears to be the first significant application of that theory to the general Dodd-Frank Act UDAAP prohibition.
  • In deciding the “true lender” issue, the court essentially adopts the holding in CashCall, Inc. v. Morrisey, 2014 WL 2404300 (W.Va. May 30, 2014), a West Virginia state law case, holding that the proper test for determining the “true lender” is the “predominant economic interest” of the parties. Varying slightly from Morrisey, the court finds that the “key and most determinative factor” is whether the bank “placed its own money at risk at any time during the transactions, or whether the entire money burden and risk of the loan program was borne by CashCall.” Therefore, although the court uses the term predominant economic interest, the court’s holding could be read to establish that the bank does not have to have more economic interest in the transaction than the non-bank partner. Rather, the bank would be found to be a “true lender” if the bank has any of its own funds at risk for any period of time.
  • The court dismisses without comment the holdings in other federal cases that looked to the contractual relationships between the parties to determine the “true lender,” such as Sawyer v. Bill Me Later, Inc., 23 F. Supp. 3d 1359 (D. Utah 2014).
  • Typically, “true lender” issues are raised by private litigants or state regulatory authorities tasked with enforcing state law. In this case, the CFPB, a federal agency that has no apparent authority to enforce state law, has used state law as a predicate for a federal law violation.
  • According to the court, CashCall relied on the advice of counsel that the tribal bank partnership did not require CashCall to obtain state lending licenses or subject the loans to state laws. However, reliance on counsel did not absolve CashCall—or its CEO and owner—from liability for the UDAAP statute and other violations.

Key Takeaways

The combination of using state law as a predicate for a UDAAP violation and rejection of the advice of counsel defense makes this decision noteworthy. The legal theory implicit in the CFPB’s approach is that, in attempting to collect a debt, a creditor makes an implied representation that that debt is enforceable or, conversely, a material omission that the debt is unenforceable. In rejecting the advice of counsel defense, the CFPB successfully took the position that the objective falsity of this implied representation or omission is “deceptive” in violation of the UDAAP statute regardless of the creditor’s subjective belief that the debt was collectible. Under that combination of theories, a creditor’s failure to “disclose” any violation of state law that the CFPB concludes is “material”—even if the creditor reasonably believes that its practices comply with state law—may give rise to a federal “deception” charge.

One can expect the CFPB to use a similar “bootstrap” approach to relying on other state law violations as a predicate to its UDAAP enforcement authority in future litigation, and reliance on the advice of counsel regarding state law compliance will not afford a consumer financial services provider a safe harbor from accusations of wrongdoing by the CFPB. Given the CFPB’s active and aggressive approach to UDAAP enforcement, consumer financial services providers would be well-advised to evaluate their state law compliance programs and scrutinize very closely bank partnership models. We also believe that other federal agencies such as the Federal Trade Commission (FTC) and Federal Communications Commission (FCC), which have longstanding authority similar to the CFPB’s UDAAP authority, could view this decision as judicial encouragement to exercise their authority in this space as well.

The decision presumably will be appealed to the US Court of Appeals for the Ninth Circuit, where CashCall’s prospects for success are unknown at this time.

Copyright © 2016 by Morgan, Lewis & Bockius LLP. All Rights Reserved.
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