Last Week, This Morning

June 1, 2026

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.

On May 27, two non-profit organizations, along with two consulting companies that provide services focused on fair lending compliance to financial institutions, filed a lawsuit in the U.S. District Court for the District of Columbia seeking to vacate the Consumer Financial Protection Bureau's final rule that provides that disparate impact liability is not cognizable under the Equal Credit Opportunity Act. The CFPB finalized the rule on April 22, 2026, with an effective date of July 21, 2026. The plaintiffs seek to vacate the final rule under the Administrative Procedure Act as arbitrary, capricious, not in accordance with law, and in excess of statutory authority. The plaintiffs allege that the CFPB failed to engage in a meaningful analysis of the final rule's costs and benefits and the rulemaking process was procedurally defective because the agency failed to collect the requisite input from small business entities, to conduct the requisite flexibility analyses, to provide adequate time for notice and comment, and to meaningfully respond to significant comments. The plaintiffs also seek to vacate the final rule based on allegations that Russell Vought lacks authority to serve as the CFPB's acting director.

The CFPB's final rule amends provisions of Regulation B related to whether disparate impact claims are cognizable under the ECOA, under what circumstances a creditor may be deemed to be making a statement to an applicant or prospective applicant that would discourage, on a prohibited basis, a reasonable person from applying for credit, and under what conditions a creditor may offer special purpose credit programs. The final rule generally: (1) provides that the ECOA does not authorize disparate impact claims, deletes language in Section 1002.6(a) of Reg. B indicating that disparate impact liability, referred to as the "effects test," may be applicable under the ECOA, and adds language stating that the ECOA does not recognize the "effects test"; (2) amends Section 1002.4(b) of Reg. B's prohibition on discouraging applicants or prospective applicants from applying for credit to clarify that it prohibits statements of intent to discriminate in violation of the ECOA and is not triggered merely by negative consumer impressions and to clarify that encouraging statements by creditors directed at one group of consumers is not prohibited discouragement as to applicants or prospective applicants who were not the intended recipients of the statements; and (3) amends the standards for special purpose credit programs offered by for-profit organizations under Section 701(c)(3) of the ECOA to prevent unlawful discrimination.

Amicus Brief(ly): The CFPB is no stranger to litigation related to its rulemakings. When the CFPB is writing rules to more closely regulate consumer credit providers, those covered entities - and often the trade groups that represent them - will sue to challenge the rules. Over the past year and half, however, it's been the opposite - when the CFPB has focused on deregulatory efforts, consumer advocacy groups and non-profits challenge those moves and claim that they make consumers less safe. This particular challenge to the CFPB's continued dismantling of fair credit laws focuses on both the substance of the ECOA final rule and the administrative aspects of the rulemaking. Because it is so early in the litigation, the court has not stayed the July 2026 effective date of the final rule. But it is a safe bet that if this challenge is successful, the administration will appeal the decision. If the challenge is not successful, the plaintiffs may appeal, but it is also a safe bet that there are some other groups looking to put another case together to challenge the final rule.

In a move that likely will restrict access to capital for Vermont businesses, the Vermont legislature recently passed a bill targeting both factoring and sales-based financing. Unless vetoed by Governor Phil Scott, House Bill 648 will impose the following requirements on factoring and sales-based financing providers and brokers effective July 1, 2027:

• Providers of factoring and/or sales-based financing must obtain a "lender" license;
• Brokers, lead generators, and anyone that advertises factoring and/or sales-based financing online or via direct mail or telephone must obtain a "loan solicitation license"; and
• Providers of factoring and/or sales-based financing must provide cost disclosures including APR, similar to disclosure requirements in California and New York.

The Vermont bill also copies a controversial section of a recent Texas law, 2025 TX House Bill 700. If enacted, the Vermont bill prohibits a provider of factoring and/or sales-based financing from establishing "a mechanism for automatically debiting a recipient's deposit account" unless the provider holds a validly perfected security interest in the "recipient's account" as defined in Article 9 of the Uniform Commercial Code, with a first priority against the claims of all other persons. The Texas law impacts only providers of sales-based financing. It appears that the Vermont legislature used the Texas law as a blueprint to target both factoring and sales-based financing.

The Vermont bill also bans confessions of judgment or any similar provisions in a factoring or sales-based financing contract and requires any contract to be governed exclusively by Vermont law. Finally, the bill requires any dispute to be brought in a Vermont court. If the contract provides for arbitration, face-to-face proceedings cannot be required outside of Vermont.

The bill exempts transactions of $1 million or more, banks and financial institutions, and sellers of goods or services that finance the sale of such goods or services to the recipient.

The language targeting factoring and sales-based financing was added just last week to a larger bill impacting banking, insurance, and securities.

Amicus Brief(ly): With the benefit of time and not going first, states can write laws that achieve their primary purposes but avoid some of the pitfalls that the early adopters faced. Vermont had the benefit of watching states like New York, California, Connecticut, New Jersey, Texas, Virginia, and others write business financing laws, struggle with whether and how to require providers to give quasi-APR disclosure for a product that is not really credit, and test concepts for restricting what the states and critics have seen as the most challenging features of the sales-based financing products. The result for Vermont is a law that, because of the way it restricts the terms of factoring and sales-based financing, could effectively limit the ability of providers to make those products available to small Vermont businesses whose other financing options may be limited. The law sensibly removes larger transactions from its scope, likely on the theory that a business seeking $1 million or more in capital has the resources to negotiate terms more effectively than the smallest of small businesses. However, the interests of that latter category of potential customers seem to get lost in this new law that imposes some very strict business financing terms on providers.

On May 27, Minnesota Governor Tim Walz signed House File 4188, which made a number of significant changes to the state's consumer credit laws, effective August 1, 2026.

Perhaps most significantly, Minnesota will now include companies that are licensed under the Minnesota Residential Mortgage Originator and Servicer Licensing Act (Minnesota Statutes Chapter 58) within the definition of "financial institution" under Minn. Stat. Section 47.59. Until now, Minnesota had a bifurcated approach to mortgage licensing. Although licensed as residential mortgage originators, such licensees were generally required to obtain additional licensing for rate authority to exceed the state's otherwise applicable usury limits on subordinate lien mortgage loans. Effective August 1, licensed residential mortgage originators may originate subordinate lien residential mortgage loans under the rate and fee authority of Section 47.59. Section 47.59 is the state's most modern and favorable credit statute and permits an APR on mortgage loans of up to 21.75%. H.F. 4188 further amends Chapter 56, the Minnesota Regulated Loan Act, to provide that Chapter 56 does not apply to licensed residential mortgage originators and servicers to the extent that they offer residential mortgage origination services or residential mortgage servicing. It is important to note that Section 47.59 is the default lending statute in Minnesota for financial institutions, and it requires that financial institutions wishing to make first lien loans under Section 47.204 (Minnesota's version of Section 501 of the federal Depository Institutions Deregulation and Monetary Control Act) specify this in the promissory note, contract, or other loan document.

While the above change is good news for residential mortgage originators, H.F. 4188 imposes significant burdens on residential mortgage loan servicers under Chapter 58. Specifically, the legislation amends the Minnesota Residential Mortgage Originator and Servicer Licensing Act to add a new Section 58.131, which imposes a wide range of new residential mortgage loan servicing standards. Among other things, these standards will require:

• compliance with applicable federal credit laws;
• additional notification requirements when servicing rights are transferred;
• payment processing requirements;
• escrow account maintenance requirements;
• reasonable attempts to comply with information requests;
• establishment and maintenance of certain procedures and systems to respond to borrower complaints and inquiries; and
• acting in good in "good faith and fair dealing" as defined in the legislation, including in connection with loss mitigation and loan modification efforts.

Also of note, servicers of at least 500 loans must record and maintain for 60 months telephone conversations with the borrower or borrower's representative. Mortgage loan servicers of bank loans will now also be subject to the Act's private right of action provisions.

In addition to the above, H.F. 4188 makes a number of changes to Minnesota's credit laws as follows:

• All motor vehicle retail installment sales contracts will now be able to impose statutory late fees and Non-Sufficient Funds fees as provided in Section 47.59. This change is accomplished by amending Section 47.59 to include licensed sales finance companies within the definition of "financial institution" under Section 47.59. Minnesota law is also amended to provide that licensed sales finance companies (a term that includes buy-here, pay-here dealers) may enter into MVRISCs under the rate and fee provisions of Section 47.59 in lieu of those in the Motor Vehicle Retail Installment Sales Act;
• The Student Loan Borrower Bill of Rights Act (Chapter 58B) is amended to add additional requirements in connection with the sale, assignment, or transfer of student loan servicing;
• Minnesota's Collection Agencies Statute (Chapter 332) is amended to provide that the term "collection agency" does not include licensed residential mortgage loan servicers or licensed student loan servicers to the extent that such servicers are engaged in that activity. This amendment clarifies that such servicers will not be required to obtain dual licensing in connection with their servicing activities; and
• Minnesota's Consumer Small Loan statute (Section 47.60) is amended to clarify that "arranging" a consumer small loan (generally single installment loans of $350 or less) includes but is not limited to any substantial involvement to facilitate, market, generate leads for, underwrite, or collect a consumer small loan.

Finally, H.F. 4188 amends Chapter 56, the Minnesota Regulated Loan Act, to provide that a person must obtain a license from the Department of Commerce before arranging a "consumer short-term loan" under Section 47.601. A "consumer short-term loan" means a loan to a borrower that has a principal amount, or an advance on a credit limit, of $1,300 or less and requires a minimum payment within 60 days of loan origination or credit advance of more than 25 percent of the principal balance or credit advance. For purposes of this definition, each new advance of money to a borrower under a consumer short-term loan agreement constitutes a new consumer short-term loan.

Amicus Brief(ly): From time to time, states rewrite their myriad consumer credit laws to harmonize them and simplify licensing and other requirements that, over the years, don't work well in the context of an evolving market for consumer credit products. We get a mixed bag with this Minnesota update that keeps, and even increases, the focus on Section 47.59 for finance charge/interest rates and fee authority and simplifies and clarifies licensing for some servicers and debt collectors. Non-bank mortgage loan servicers endure the biggest regulatory changes in this law, facing a number of new regulatory requirements that will demand their attention in advance of the August 1 effective date. There is plenty to digest in this new Minnesota law over the next 60 days.

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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.