Last Week, This Morning

June 9, 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.

On June 3, the Federal Housing Administration published Mortgagee Letter 2025-14, Updates to Modernization of Engagement with Borrowers in Default and Loss Mitigation, which applies to all FHA-insured Title II Single Family forward mortgage programs. This new Mortgagee Letter revises and streamlines the policy established in Mortgagee Letter 2024-24, Modernization of Engagement with Borrowers in Default, discussed in the December 9 Last Week, This Morning, and provides clarifications to Mortgagee Letter 2025-12, Tightening and Expediting Implementation of the New Permanent Loss Mitigation Options, published on April 15, 2025.

Specifically, this new Mortgagee Letter:

• updates the requirements for a reasonable effort to arrange an interview with borrowers in default;
• removes unnecessarily burdensome requirements associated with the interview with borrowers in default;
• clarifies the transition to the new home retention options for borrowers who are currently required to complete a trial payment plan;
• updates the requirement for borrowers in imminent default to complete a four-month trial period plan; and
• updates the disaster forbearance requirements.

Certain updates and the replacement of the loss mitigation consultation with an interview are effective July 1, 2025, while other updates are effective October 1, 2025.

Amicus Brief(ly): In these streamlining updates, HUD provides some useful guidance about what constitutes a "reasonable" effort to arrange a loss mitigation interview with a borrower. Specifically, two attempts to contact a borrower by mail, by phone, in person, or by permitted electronic communication will suffice, and only one such attempt is necessary if that attempt results in a successful contact with the borrower. We always appreciate when regulators couple a requirement to do something "reasonable" with some idea of what they think is reasonable in the context of the requirement. The updates in this Mortgagee Letter reflect a continuing effort by HUD to balance the important requirement for servicers to conduct loss mitigation outreach when borrowers' payment performance slips and the reality that the required interviews and other loss mitigation efforts are not likely to resolve payment problems for all borrowers or loans.

On May 30, the U.S. Court of Appeals for the Fourth Circuit held that a financial technology company that operates a mobile app offering cash advances to Maryland consumers could not enforce a borrower's arbitration agreement with the third-party loan provider.

A borrower signed up for the fintech's mobile app to obtain a salary advance. The borrower agreed to the fintech's terms and conditions, which stated that the salary advance payments would be processed by its loan provider and that he must agree to the loan provider's terms of service. The loan provider's terms of service included an arbitration agreement.

The borrower sued the fintech individually and on behalf of a class, alleging that it violated the Maryland Consumer Loan Law by failing to be licensed, the Truth in Lending Act by failing to disclose the total cost of the loans it offers or the true annual percentage rate, the Electronic Funds Transfer Act by conditioning its extension of credit on repayment by means of preauthorized transfers, and the Maryland Consumer Protection Act by engaging in conduct that constitutes unfair, abusive, or deceptive trade practices. The fintech moved to compel arbitration of the claims pursuant to the arbitration agreement in the loan provider's terms of service. The fintech argued that the borrower should be equitably estopped from refusing to abide by the agreement to arbitrate claims "arising out of or relating to" the loan provider's terms of service because the loan provider's services were a necessary prerequisite to the borrower receiving salary advances from the fintech. The trial court concluded that the fintech was not entitled to enforce the arbitration agreement and denied its motion to compel.

The appellate court affirmed the trial court's decision. The appellate court applied Maryland law regarding when equitable estoppel permits non-signatories to enforce an arbitration agreement. First, the appellate court concluded that the borrower's claims against the fintech did not rely on the loan provider's terms of service with the borrower, which contained the arbitration provision. The borrower's claims also did not seek the benefit of the loan provider's agreement while simultaneously attempting to avoid the terms of the arbitration provision contained in that agreement. Second, the appellate court concluded that the borrower's claims did not allege substantially interdependent and concerted misconduct by both the fintech and the loan provider. In fact, the borrower did not allege that the loan provider engaged in misconduct at all. The fintech argued that the borrower's claims necessarily arose out of and were intertwined with the loan provider's terms of service because he could not have obtained the fintech's services without agreeing to the loan provider's terms of service, but the appellate court rejected this argument, finding that this type of relationship was insufficient to preclude the borrower from denying the applicability of the arbitration agreement.

Amicus Brief(ly): Notably, the Fourth Circuit's arbitration decision turns as much on the terms of the various agreements governing this transaction as it does on Maryland's equitable estoppel rules. The arbitration provision the fintech sought to invoke was in the consumer's agreement with the lender in the transaction; it was not in the salary advance agreement with the fintech that was not a party to the consumer's agreement with the lender. In other similar contexts, we have seen courts deny efforts to compel arbitration when the various agreements important to a transaction are not integrated and the person seeking to compel arbitration is not a party to the agreement that includes the arbitration provision. In addition, the consumer's claims did not seek the benefit of the lender's agreement while trying to disclaim the arbitration provision - the consumer's claims against the fintech derived only from the agreement with the fintech. This case underscores the importance of agreement language when providers seek to compel arbitration to resolve claims.

Hawaii Governor Josh Green recently signed Senate Bill 1367, which amends Chapter 480J of the Hawaii Revised Statutes governing installment loans.

The new law amends the definitions of "installment lender" and "lender" to mean "any person not exempt under section 480J-32 who is in the business of offering or making an installment loan, who arranges an installment loan for a third party required by this chapter to be licensed, or who acts as an agent for a third party required by this chapter to be licensed with respect to the third party's offering, making, or arranging of installment loans, through any method including mail, telephone, the Internet, or any electronic means." The new law also requires monthly loan maintenance fees to be prorated daily. In addition, it provides that an installment lender may offer a consumer the option to make a payment by debit card and may not charge more than a $1 convenience fee, but it prohibits the installment lender from requiring this form of payment. The new law also provides that an installment lender may not charge the consumer a non-sufficient funds fee for rejected debit card payments. Finally, the new law repeals the requirement for installment lenders to wait three days after a consumer fully repays a loan before issuing a new installment loan.

The new law is effective on July 1, 2025.

Amicus Brief(ly): Hawaii licensees will have some compliance adjustments to make as a result of this new law. Effective in less than a month, the law allows for payment convenience fees but limits them to $1 or less. While that will defray some costs of taking electronic payments, it will not compensate lenders for the cost of using a payment processor. Lenders that impose monthly maintenance fees will have to make system adjustments to comply with the law's prorated fee limitations. The new law also includes a prohibition on licensees that want to require consumers to use preauthorized automatic ACH debit card payments on loans, which the federal Electronic Funds Transfer Act already prohibits, but it also prohibits lenders from imposing insufficient funds fees on rejected debit card payments, which is uncommon and restrictive. There is not a lot in this focused bill, but what is there is likely to impact licensees and require some compliance adjustments.

Hawaii also recently enacted Senate Bill 332, which amends Chapter 667 of the Hawaii Revised Statutes governing the power of sale foreclosure process.

The legislature states in the new law that "natural disasters and other economic crises can often lead homeowners to default on their mortgage payments, resulting in a wave of foreclosures. Previous foreclosure crises have resulted in the replacement of owner-occupied homes with investor-owned rentals, prolonged vacancies, and unmaintained residential properties. As climate-related crises become more intense and frequent, and as housing cost burdens increase for low- to moderate-income homeowners, the legislature believes it is necessary to ensure that foreclosed homes are not lost to second homebuyers or residential investors."

The new law prohibits sellers of mortgaged properties in a power of sale foreclosure from bundling properties at a public sale and requires each mortgaged property to be bid on separately, unless the deed or mortgage otherwise requires. The new law also specifies that the sale of a foreclosed property is not final until the earliest of the following: (1) 15 days after the public sale, unless an eligible bidder submits: (a) a subsequent bid that is equal to or exceeds the amount of the latest and highest bid of the successful bidder under Section 667-29, or (b) written notice of intent to submit a subsequent bid; or (2) 45 days after the public sale, provided that, during the 45-day period, an eligible bidder may submit a subsequent bid that is equal to or exceeds that amount of the latest and highest bid of the successful bidder under Section 667-29.

The new law is effective on July 1, 2025.

Amicus Brief(ly): Local consumer advocates cheered the passage of this bill, which will help them combat "disaster capitalism" that sees well-funded non-Hawaiians come in after disasters and buy up properties for commercial development or investment. The new law may allow locals to redeem individual properties at foreclosure sales, which is virtually impossible when foreclosing lenders bundle properties to sell together and effectively preclude individual consumer borrowers or local communities from regaining rights in their property. The law also allows "eligible bidders" with an interest in individual properties to redeem them from sale through a narrowly focused post-sale redemption procedure - an expansion of typical property redemption laws that allow borrowers an exclusive right of redemption after sale. There are no regulatory compliance updates to make as a result of this new law, but it is noteworthy for its local community focus and benefits.

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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.