Last Week, This Morning

July 7, 2025

Below you will find several key developments in the financial services industry, including related developments in information privacy and data security, from the past week. We add an "Amicus Brief(ly)¹" comment to each item, where we briefly (see what we did there?) note for friends (and again?) of CounselorLibrary the important takeaways from the developments outlined in the email. Our legal reporters - CARLAW, HouseLaw, InstallmentLaw, PrivacyLaw, and BizFinLaw - provide more comprehensive, real-time updates of federal and state laws, regulations, litigation, and other industry items of interest. For a personal guided tour and free trial of any of these legal reporters, please contact Michael Willer at 614-855-0505 or mwiller@counselorlibrary.com.

The Pennsylvania attorney general recently announced that his office reached a settlement with a Kansas-based debt collector that collected or attempted to collect debts incurred by Pennsylvania residents who obtained online payday loans made by lenders affiliated with Native American tribes that were not licensed under Pennsylvania's Consumer Discount Company Act and charged interest on the loans in excess of that permitted by Pennsylvania's Loan Interest and Protection Law. The LIPL provides that the maximum lawful rate of interest for a loan in an amount less than $50,000 is 6% per year, and the 6% cap applies to all consumer lenders except those licensed under the CDCA. The Pennsylvania Supreme Court has established that the effect of these two statutes is that if a lender is licensed by the Department of Banking in accordance with the CDCA, it can charge between 6% and 24% on loans under $25,000. If not licensed, it is bound by the 6% cap imposed by the LIPL. The AG alleged that, by collecting on the tribal loans, the debt collector misrepresented the legal status of these debts as lawfully due and owing, in violation of Pennsylvania's Fair Credit Extension Uniformity Act and Unfair Trade Practices and Consumer Protection Law.

The debt collector denied the AG's allegations, maintaining that it is not required to investigate the validity of a debt in the absence of receipt of a dispute from the consumer.

Under the terms of the settlement, the debt collector agreed to pay $23,400 in restitution and $5,000 in civil penalties. The debt collector voluntarily stopped collecting on loans made by the tribal lenders in June 2022 and returned such accounts to their original creditors. The debt collector has also agreed to comply with Pennsylvania law when collecting on loans made to Pennsylvania residents.

Amicus Brief(ly): The issue in this settlement was not so much the practices of the debt collector but the underlying loans themselves. Some states have expressed fairly open hostility to tribal lending models that involve non-tribal entities facilitating tribe-originated online loans with marketing and lead generation, and the non-tribal entity buys the loan and services it after origination. As in the case of the bank partnership model, the level of resistance from a state typically turns on how involved the actual lender is and what entity has the predominant economic interest in the loan. Besides Pennsylvania, the states of Arkansas, Connecticut, New York, Virginia, and West Virginia are known to make it challenging to run tribal lending programs, to the point that such programs in those states are just about non-existent. Servicers and collectors should take note of the AG's focus on licensing for the non-bank, non-tribe entity and the way the AG took the case to the debt collection company.

Rhode Island Governor Daniel McKee recently signed companion bills House Bill 5811 and Senate Bill 936 to amend the Secure and Fair Enforcement for Mortgage Licensing Act of 2009 to prohibit an individual who is licensed as both a Rhode Island real estate agent and a mortgage loan originator from being compensated for both the sale of the property and the origination or referral of the loan secured by the property. The amendment was effective upon the governor's signature.

Amicus Brief(ly): These new laws are designed to avoid conflicts of interest and put some distance between the real estate broker and loan originator representing the consumer. The laws' prohibition on a person receiving compensation for both roles will keep licensed brokers who are also licensed loan originators from performing both roles in the same transaction, because they work largely on commission and cannot earn a commission on both the sale of the property and the origination of the new mortgage loan. Importantly, individual licensees can continue to work in both capacities - they just cannot do that, for pay, in the same transaction. This is a good consumer protection rule. Several states have a similar rule, while some other states allow the dual capacity work but require a disclosure to the consumer and ask for the consumer's consent before proceeding.

Washington Senate Bill 5686, which was signed into law on May 20, 2025, amends the state's Deeds of Trust Act to expand and fund the foreclosure mediation program overseen by the Washington Department of Commerce ("DOC"). S.B. 5686 requires the assessment and collection of a new $80 Foreclosure Prevention Fee for all residential mortgage loans closed on or after July 27, 2025, with the exception of reverse mortgage loans for persons over the age of 61.

The DOC recently provided guidance on the new Foreclosure Prevention Fee. The guidance states, in part, that "[t]he Foreclosure Prevention Fee must be assessed and paid during the residential mortgage loan process. This requirement applies to any person in the business of making a residential mortgage loan, including, but not limited to, non-depository lenders as well as all state and federally-chartered depository institutions. Any person making a residential mortgage loan must ensure that the Foreclosure Prevention Fee is disclosed on the loan estimate, closing disclosure, and any other disclosures required by state and federal law. Further, [S.B. 5686] requires escrow agents or other settlement or closing agents processing the loan closing to collect the Foreclosure Prevention Fee from borrowers at the time of closing." S.B. 5686 requires escrow agents or other settlement or closing agents to provide borrowers with a notice of the Foreclosure Prevention Fee and its purpose. The DOC has created and published a Foreclosure Prevention Fee disclosure that may be used to comply with this requirement.

Amicus Brief(ly): This well-intentioned law requires something of a "bummer" disclosure among all the closing documents for a mortgage loan in Washington, because the disclosure explains an $80 fee for a service that borrowers closing on their mortgage loans hope to never enjoy. But things happen and better to have the disclosure to make borrowers aware of mediation and other loss mitigation options the state makes available, especially when there is a fee involved.

Rhode Island Governor Daniel McKee recently signed House Bill 5235 and Senate Bill 169 to provide an interest rate cap on medical debt and prohibit certain actions taken on judgments arising out of medical debt.

H.B. 5235 provides that interest on medical debt is "limited to the rate of interest equal to the weekly average one-year constant maturity Treasury yield, but not less than one and a half percent per annum (1.5% p.a.) nor more than four percent per annum (4% p.a.) as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date when the consumer was first provided with a bill." The new interest rate cap applies to new debt incurred after the law's effective date, which was June 26.

S.B. 169 prohibits the filing of an execution or attachment against a consumer's principal residence and garnishment of a consumer's salary or wages for judgments based on medical debt. S.B. 169 takes effect on January 1, 2026.

Amicus Brief(ly): The interest rate cap law appears to be designed carefully to avoid situations where consumers use general-purpose credit cards to pay for medical services or devices, requiring the credit card issuer to monitor purchases and adjust rates accordingly. Specifically, the law limits interest in connection with debts "owed to a healthcare facility or a healthcare professional," as opposed to a broader limitation of interest on debts incurred in connection with health care. The bill passed unanimously, likely a product of how carefully the sponsors drafted it. The second new law focuses on keeping consumers from losing their homes or wages to pay judgments derived from medical debts. Medical debt concerns remain a high priority in a number of states, with many states setting restrictions on furnishing medical debt information to consumer reporting agencies.

On June 30, California Governor Gavin Newsom signed Assembly Bill 130, which adds a section to the Civil Code that makes certain mortgage servicing practices unlawful in connection with a subordinate-lien mortgage. The new law is effective immediately.

A.B. 130 makes the following practices unlawful:

• The mortgage servicer did not provide the borrower with any written communication regarding the loan secured by the mortgage for at least three years.
• The mortgage servicer failed to provide a transfer of loan servicing notice to the borrower when required to provide that notice by law, including, but not limited to, the federal Real Estate Settlement Procedures Act, as amended (12 U.S.C. Sec. 2601 et seq.), and investor or guarantor requirements.
• The mortgage servicer failed to provide a transfer of loan ownership notice to the borrower when required to provide that notice by law, including, but not limited to, the federal Truth in Lending Act, as amended (15 U.S.C. 1601, et seq.), and investor or guarantor requirements.
• The mortgage servicer conducted or threatened to conduct a foreclosure sale after providing a form to the borrower indicating that the debt had been written off or discharged, including, but not limited to, an Internal Revenue Service Form 1099.
• The mortgage servicer conducted or threatened to conduct a foreclosure sale after the applicable statute of limitations expired.
• The mortgage servicer failed to provide a periodic account statement to the borrower when required to provide that statement by law, including, but not limited to, the federal Truth in Lending Act, as amended (15 U.S.C. 1601, et seq.), and investor or guarantor requirements.

The new law also requires mortgage servicers to provide a certification under penalty of perjury that: (1) the mortgage servicer did not engage in an unlawful practice; or (2) the mortgage servicer committed an unlawful practice and lists all such instances.

Further, the new law provides new remedies to a borrower to challenge a nonjudicial or judicial foreclosure as a result of an unlawful practice.

Amicus Brief(ly): Where to start? The amendments to the subordinate mortgage law are part of a much bigger bill designed to spur additional housing development in California and help with affordability. But in the push to get this "budget trailer" bill through, the legislators may not have been as precise as they wanted to be with respect to the mortgage servicer provisions. With these provisions, the state was focused on protecting consumers from "zombie" junior lien mortgage loans that servicers abandoned. The law is retroactive, making practices that were lawful before suddenly unlawful (e.g., commencing foreclosure before the statute of limitations has run but more than three years since the last communication attempt with an unresponsive borrower). It defines "mortgage servicer" inclusively to pick up prior servicers and then requires a foreclosing servicer to certify not only its own practices (e.g., sent required notices and statements) but also the practices of servicers that came before the current servicer. That's a burden. And servicers must record the certification with the required notice of default. Finally, the courts have broad discretion to award equitable remedies for non-compliance, including barring foreclosures. This is a consequential law for servicers, and it may prove more consequential to the junior-lien mortgage market in California than its sponsors estimated.

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¹ For the unfamiliar, an “Amicus Brief” is a legal brief submitted by an amicus curiae (friend of the court) in a case where the person or organization (the “friend”) submitting the brief is not a party to the case, but is allowed by the court to file the brief to share information or expertise that bears on the issues in the case.