Legal Briefs

Par Funding Files Strong Response to SEC’s TRO After “Lockout”

August 4, 2020
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United States Securities and Exchange commission SEC logo on entrance of DC building near H streetPar Funding’s attorneys at Fox Rothschild filed a strong response with the Court over the apparent actions taken by the Receiver to lock out its employees and suspend ACH debits, the docket shows.

“On the afternoon of July 28, the SEC advised that Mr. Stumphauzer (the appointed receiver) would cause the immediate dismissal of all the employees of the businesses and that no employees of the business would be permitted to enter the premises – leading to over 100 employees being barred from the business premises for the last week despite the fact that thousands of merchants around the country rely on ongoing communication with CBSG to ensure the ongoing viability of their business operations.”

It continues…

“To date, not a dollar has been taken in by the Receiver to pay investors, and they have not been paid. The Receiver’s and SEC’s actions are ruining a business with excellent fundamentals and a strong financial base and essentially putting it into an ineffective liquidation causing huge financial losses. In taking this course of action against a fully operational business, the key fact that has been lost by the SEC, is that their actions are going to unilaterally lead to massive investor defaults.”

You can view the entire argument here.

Par’s attorneys are expected to file a more comprehensive opposition by the end of the week.

deBanked did not reach out to any party for comment given the unlikelihood that any would be shared on pending litigation.

Did Sealed Case Get Leaked on Bloomberg News Site?

August 4, 2020
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BloombergA series of Bloomberg News stories in 2018 appear to have put a handful of companies in the cross-hairs of regulators, recent legal filings indicate, and Bloomberg is enjoying unusual status in the saga.

One example is the copy of a federal lawsuit brought by the SEC that appeared on Bloomberglaw.com on Monday, July 27th. A summary of the lawsuit and the full 58-page complaint were broadcast through the Bloomberg-branded website in Google News and were quickly picked up by industry observers who pointed out that the complaint referenced an ongoing undercover investigation by law enforcement agencies.

It was an unusual reveal.

Except when deBanked tried to authenticate the documents by attempting to retrieve an original copy through the court system, we were unsuccessful because the entire case was sealed.

The case and an identical copy of the complaint, which Bloomberg had been circulating all week, were finally unsealed on Friday, July 31st. The case number was the only thing different.

The odd sequence of events suggests that Bloomberg Law may have inadvertently blown the lid on a case almost a week before anyone was supposed to know about it, including the defendants. Over the weekend, one defendant was upset that he had not been able to access the docket until the evening of July 31st. That was 4 days after the world had already gotten a glimpse of it.

FTC Commissioner Rohit Chopra on Merchant Cash Advances

August 3, 2020
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United States Federal Trade Commission

Following recent lawsuits filed by the FTC, Commissioner Rohit Chopra made the following statements earlier today in an announcement about merchant cash advances:

As the Commission proceeds into litigation in these matters and further studies this market, I hope that we will uncover additional information about business practices in this opaque industry. In particular, we should closely scrutinize the marketing claim that these payday-style products are “flexible,” with payments contingent on the credit card receivables of a small business. In reality, this structure may be a sham, since many of these products require fixed daily payments, and lenders can file “confessions of judgment” upon any slowdown in payments, with no notice or due process for borrowers.

This raises serious questions as to whether these “merchant cash advance” products are actually closed-end installment loans, subject to federal and state protections including anti-discrimination laws, such as the Equal Credit Opportunity Act, and usury caps. The stakes are high for millions of small businesses.

New York State Legislators Resume Push of Commercial Finance Disclosure Bill

July 17, 2020
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A bill (A10118A / S5470B) intended to create uniform disclosures for comparison purposes while also placing control of the commercial finance industry under the purview of the superintendent of the New York Department of Financial Services, is moving forward.

The March 2020 initiative was picked back up this week by members of the Assembly where it passed the banking committee and codes committee on a unanimous and bipartisan basis.

“When enacted, this bill will become the strongest commercial lending disclosure law in the country that covers all commercial financing products,” wrote Ryan Metcalf, Head of US Regulatory Affairs and Social Impact at Funding Circle, on LinkedIn. “It includes strong provisions that ensures enforcement and eliminates loopholes that will prevent gaming & abuse, & requires APR to be disclosed for all products.”

Metcalf further wrote that they and the Responsible Business Lending Coalition (RBLC) have been working diligently with NY state legislators for the last year or so to craft this bill. Among RBLC’s membership is Fundera, Nav, Lendistry, LendingClub and about 4 dozen other companies.

How Should A Merchant Cash Advance Be Structured, What is Syndication, and More?

June 29, 2020
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A recent roundtable hosted by Pepper Hamilton partner Gregory J. Nowak examined some broad questions about merchant cash advances including:

  • What is a merchant cash advance?
  • How should a merchant cash advance transaction be structured?
  • What are the key features for enforceability?
  • Could a merchant cash advance transaction be a security?
  • What is participation? is it a security? If yes, what does that mean?
  • What is syndication?
  • What’s the role of FINRA?

They published the presentation on jdsupra.com and it can be viewed here:

Business Loan Broker “The Tyrant” Pleads Guilty

June 29, 2020
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Suffolk County PoliceThe owner of a Long Island business loan brokerage accused of orchestrating an advance fee loan scheme, pled guilty this month. Demetrios Boudourakis, known in his brief MMA fighting career as The Tyrant, pled guilty to the top charge of grand larceny in the 2nd degree.

Boudourakis was arrested last year after joint law enforcement efforts by the Suffolk and Nassau police and sheriff’s departments, New York State Police, the FBI and the Drug Enforcement Administration, had been monitoring his company’s business for months. According to the Suffolk County District Attorney, the investigation revealed evidence that Boudourakis offered loans to his targets in exchange for advance fees, and then collected the fees without providing the loans. Once he and his employees had received the advance fees, they would cease contact with the victims. The scheme was determined to have generated stolen proceeds in excess of $2 million.

His sentencing date is on September 4th, where he is expected to serve between 5 and 10 years in prison.

Separately, pending federal drug charges against him were recently dropped.

If You Do MCA, You’re Not a Lender (Part Two)

June 16, 2020
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wrongA three-year-old deBanked blog post turned out to be a bit prophetic.

Titled If You Don’t Make Loans, You’re Not a Lender (And definitely not a ‘direct lender’) and posted on January 19, 2017, I hypothesized that the misuse of financial language on the phone or in an e-mail, particularly if one conflated merchant cash advances with lending, could one day result in a subpoena for a deposition to explain it.

In the People of the State of New York, by Office of the New York State Attorney General v. Richmond Capital Group LLC et al, that very scenario played out. Several people were subpoenaed last year and were required to give testimony to lawyers for the New York State Attorney General to explain why internal company communications allegedly referred to MCAs as loans or why a purported MCA company website made use of lending terminology.

The answers, which are public record, were not great. At least two individuals answered that line of questioning by pleading the fifth to potentially avoid self-incrimination.

While there are a lot of colorful details to consider in this case, the AG’s lawsuit dives into the various ways in which the defendants allegedly conflated financial products, including that a defendant company allegedly advertised itself as a “lender” when it actually was not.

While the allegations in the AG’s complaint are probably somewhat unique, there are claims and arguments within them that may be worth further legal review and analysis. Contact an industry-knowledgeable attorney if you have questions.

Deloitte Sued Over Audits of Failed DLI Fund

May 7, 2020
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Those affected by the failure of Direct Lending Investments (DLI) have added a new target to blame, Deloitte & Touche LLP and related entities.

A lawsuit filed last week in the Superior Court of California says that Deloitte was engaged by DLI to audit the Funds’ financial statements and accompanying footnotes in accordance with GAAP for the years ending 2016 – 2018 and issued clean unqualified audit reports that “negligently ratified and confirmed the false valuations contained in the financial statements and footnotes disseminated to the Plaintiffs.”

A copy of the complaint can be found here.

New York Supreme Court Grinds to a Halt

March 24, 2020
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Amid the Coronavirus pandemic, the New York Unified Court System has modified its protocols. Among the limitations, the Supreme Court will only be handling “essential applications as the court may allow.” Examples offered were Mental Hygiene Law Applications, civil commitments, and guardianships. All other matters and conferences are being adjourned to future dates.

These temporary rules went into effect on March 17th and will continue until further notice.

Thanks to the Virus Craze: It May Now Be Unlawful For Telemarketers Doing Business in New York To Call Large Swaths Of The Country

March 10, 2020
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Are you a telemarketer that does business in New York? A large and growing percentage of the country may now be off-limits to contact, thanks to a recently enacted New York State law that prohibits unsolicited telemarketing sales calls to any person in a county, city, town or village under a declared state of emergency or disaster emergency.

New York General Business Law 399-z (5-a)

It shall be unlawful for any telemarketer doing business in this state to knowingly make an unsolicited telemarketing sales call to any person in a county, city, town or village under a declared state of emergency or disaster emergency as described in sections twenty-four or twenty-eight of the executive law.

The statute, which seemingly doesn’t limit its reach to New York individuals, but rather to any place in which a state of emergency has been declared, may mean that anyone doing business in New York may need to be monitoring active states of emergency around the country. At the time of this writing, those places include the states of:

  • New York
  • New Jersey
  • California
  • Florida
  • Maryland
  • Washington
  • Oregon
  • Utah
  • Kentucky
  • North Carolina

As this law amends Section 399-z, it is a good idea to read the entirety of the section.

deBanked is not a law firm. For legal advice related to this law, consult with a suitable attorney.

Income Share Agreements – Operating Under Current Regulations and Preparing for the Future

February 28, 2020
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The Income Share Agreement (“ISA”) market is rapidly developing with more providers offering ISA programs to students and outside money moving into the space. However, the legal environment remains uncertain, and providers entering the ISA market must prepare themselves both to operate in the current environment and for potential changes.

Background – What is an Income Share Agreement?

ISA providers have set a modest goal: disrupt the $1.6 trillion-dollar student loan market that has wreaked havoc on a generation’s finances by aligning the interests of students and providers. In an ISA transaction, the student does not owe a specific amount of money and no interest is charged on a balance. Instead, the student agrees to pay a proportion of their future income above a specified threshold for a certain number of years. The provider of an ISA has an interest in the student consistently earning a high income for the duration of the contract—because the ISA provider generally does not get paid if the student fails to earn sufficient income.

Evolving Legal Environment

The current legal environment has not yet adapted to ISAs entering the market for funding education and associated expenses. No federal statute directly addresses ISAs and only one state—Illinois—has passed legislation contemplating ISAs. Even that legislation (the Student Loan Investment Act) merely permits a state investment fund to enter into ISAs and does not impact the private ISA market.

California and Washington have both considered legislation related to ISAs, but neither passed anything into law. Indiana’s legislature exempted certain “State educational institutions” from its Uniform Consumer Credit Code, including leading ISA provider Purdue University. However, Indiana did not expressly address ISAs under the UCCC.

No federal or state courts have published cases analyzing the treatment of ISAs under state or federal credit laws. But federal regulators appear to be aware of this issue. In a December 2019 discussion paper on ISAs released by the Federal Reserve Bank of Philadelphia, the authors acknowledged the uncertainty created by the lack of authoritative statements from courts and regulators, but did not weigh in on the legal issues.

Careful Consideration Required

When considering compliance with state and federal laws in this uncertain environment, participants must first assess which laws may apply. For state laws, if an educational institution is entering an ISA with a student, the institution must consider licensing, disclosures, and other restrictions applicable under state installment sales acts. Third-party providers must consider the application of lender licenses and associated disclosures and restrictions.

In either case, providers must consider the application of the Truth in Lending Act (“TILA”), the Equal Credit Opportunity Act (“ECOA”), the Credit Practices Rule, state laws governing the assignment of wages, and generally applicable state and federal laws, such as laws governing unfair and deceptive acts and practices and certain anti-discrimination laws.

Careful analysis of each statute, implementing regulation, and associated commentary provides some initial guidance. For example, TILA’s Regulation Z commentary excludes an “investment plan” where the party extending capital to the consumer risks the loss of capital advanced from the definition of “credit” under the Truth in Lending Act. 12 CFR 1026.2(14) cmt. 1(viii). However, participants must carefully consider with their counsel whether the Regulation Z exclusion is intended to only apply to traditional equity investments because they are not debt, or if it more broadly excludes investments that do not create an absolute obligation to pay.

Additionally, the definition of “credit” under ECOA in Regulation B not only lacks a similar comment, but also includes a comment stating that Regulation B “covers a wider range of credit transactions than Regulation Z.” 12 CFR 1002.2(j) cmt. 1. Although the Regulation B comment arguably only refers to ECOA’s coverage of commercial credit and credit regardless of the number of installments or inclusion of a finance charge, this is one example of how providers must carefully consider each potentially applicable law.

Merely assuming that laws applicable to credit do not apply to an ostensibly non-credit product without conducting an appropriate analysis creates serious regulatory risks.

Potential Federal Changes

In 2017, Senators Rubio and Young introduced the Student Success Act, and in 2019, Senators Warner and Coons joined them with a more robust ISA Student Protection Act of 2019 (the “Act”). The Act proposes a number of important steps. First, it proposes substantive consumer protection rules on ISAs and defines a “qualified ISA” to include only ISAs meeting those substantive requirements. Second, the Act would expressly preempt state laws affecting the validity of a qualified ISA, in addition to state usury, ability to pay, and licensing laws for qualified ISAs. Third, the Act would clarify the treatment of ISAs under federal credit, security, and tax laws, and empower the CFPB to promulgate certain guidance and regulations.

However, that Act has not become law and it is unclear if, or how, lawmakers will address the issue in the future. For example, in response to reports that the U.S. Department of Education was exploring offering ISAs, Senator Warren questioned whether ISAs were “in the best interest of students,” stating they could be “predatory and dangerous.”

Conclusion

The market for ISAs continues to grow, and it’s easy to see why. Given the growing student lending crisis, the presence of an alternative has significant potential. However, due to the current regulatory uncertainty, market participants must carefully weigh the legal risks.


Caleb Rosenberg

Caleb Rosenberg is an associate in the Maryland office of Hudson Cook, LLP. Caleb can be reached at 410-782-2323 or by email at crosenberg@hudco.com.







New York Appellate Court Overturns QFC, LLC v Iron Centurian, LLC

February 7, 2020
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The Appellate Division, 2nd Department of The Supreme Court of New York, overturned QFC, LLC v Iron Centurian, LLC and Mohamed Sadiqui last month, granting victory to a merchant cash advance company. The case can be summed up as follows:

A Confession of Judgment (COJ) was filed by plaintiff against defendants for breach of contract. Defendants argued by way of motion that the COJ should be vacated and agreement voided because the underlying transaction was really a criminally usurious loan. The trial court concurred and ruled in favor of defendants, vacating the COJ and voiding the “illegal” merchant cash advance transaction.

Plaintiffs appealed.

On January 29, 2020, the Appellate Division unanimously sided with the plaintiffs and overturned the lower court’s decision. Similar to two other rulings issued the same day (Volunteer Pharmacy, Micromanos), the Court said that a COJ cannot be vacated in the manner in which defendants sought it.

Lender Ranking Website Accused By FTC Of Misleading Rankings

February 6, 2020
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United States Federal Trade CommissionLendEDU, a Hoboken-based company that lists and ranks loan providers, came under fire this week after the FTC filed a complaint detailing how LendEDU charged businesses for higher positions in its rankings of lenders and promoted fake testimonials. Providing ratings for student loan refinancing, personal loans, and mortgage lenders, it is the first of these loan types that is in the spotlight.

While LendEDU initially denied that it received any compensation for its lists, saying, “ratings are comparatively objective and not influenced by compensation in anyway” and that “research, news, ratings, and assessments are scrutinized using strict editorial integrity,” this assertion was disproved by the FTC’s investigation.

Emails were discovered which featured CEO Nathaniel Matherson and Vice President of Products Alexander Coleman discussing with a business the pricing per click to hold the #1 spot on the best student loan refinancing company list, as well as what sort of traffic could be expected at this ranking. Accompanying this was a contract between LendEDU and a student loan refinancing company, revealing that in return for compensation the company would drop “[n]o lower than position three” in the rankings. It was also found that if businesses who were already in the rankings refused to pay for the clicks they received, they would drop down in the list.

The testimonials that featured prominently on LendEDU’s homepage, which noted alleged consumers’ names, colleges, and years of graduation, were found to be wholly false, with the people portrayed in them being nonexistent.

And the reviews of LendEDU that were found on Trustpilot and subsequently posted to the company’s own website, were also shown to be fake. Of the 126 reviews, 123 were found to be 5-stars; and only 11 were proven to be from customers (this was confirmed as the emails matched those used by customers), the other 115 were deigned to be written by friends, family members, and associates of LendEDU members, as well as by LendEDU employee’s themselves under false names.

All this is coming after LendEDU landed in hot water following a controversy in 2018 that saw Matherson admit to working with others to create a fictitious expert on student loans, named Drew Cloud, who would give interviews and comments to publications, creating a pro-student loan refinancing discourse. According to Matherson, Cloud “was created as a way to connect with our readers (ex. people struggling to repay student debt) and give us the technical ability to post content to the WordPress website.” Cloud was even given a pixelated face and backstory that extended into high school, imbuing him with a passion for journalism even in his teenage years. Neither Matherson’s comments on Cloud nor his fictional biography do anything to explain how or why his creators decided to give him a name that is quite clearly fake.

LendEDU promptly agreed to settle the charges and pay $350,000 while not admitting or denying the allegations. The public has 30 days to comment on the settlement prior to it becoming final.

Appellate Court Affirms Decision in Merchant Funding Services, LLC v Micromanos Corporation etc.

February 1, 2020
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On January 29th, 2020 the Appellate Division, 2nd Department, of the Supreme Court of New York, upheld the original decision issued in Merchant Funding Services, LLC v Micromanos, etc. et al.. The case concerns a Confession of Judgment (COJ) filed following Micromanos’ default on a merchant cash advance contract. The defendants sought to vacate the COJ on the basis that the underlying agreement was allegedly a criminally usurious loan but the original judge ruled in favor of the plaintiffs.

The case was so notable that deBanked published a summary of the decision three years ago. Of particular interest is that the defendants not only lost but were accused by the judge of attempting to mislead the Court. Despite that, the defendants appealed.

The defendants have now lost again. The underlying case law they had relied on to support their arguments, Volunteer Pharmacy, was overturned the same day this decision was issued, leaving little room to wonder why the Appellate Division ruled accordingly.

One Of The Most Devastating Court Decisions Against Merchant Cash Advances Has Been Overturned

January 29, 2020
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gavelMerchant Cash Advances have sat on comfortable legal footing in New York ever since an appellate court ruled in favor of Pearl Beta Funding, LLC against Champion Auto Sales, LLC in 2018, but even so, it hasn’t stopped lawyers from trying to invalidate merchant cash advance (MCA) contracts on behalf of aggrieved customers.

That’s because an MCA provided by New York-based Merchant Funding Services LLC to a business known as Volunteer Pharmacy in 2016 was ruled by New York Supreme Court Judge David F Everett to be so “criminally usurious on its face” that the normal process required to vacate a Confession of Judgment could simply be bypassed without even having to evaluate the merits of each side’s arguments and the matter automatically won in favor of Volunteer Pharmacy. The judge’s written decision, which voided the MCA contract ab initio, was replete with a scathing opinion of MFS’s business model.

The decision quietly stunned the merchant cash advance industry. MFS understandably appealed.

Dozens of lawsuits against MCA companies in the ensuing years went on to cite Judge Everett’s decision in Volunteer Pharmacy with limited success. And while the industry sat around to find out what would happen in that case, Pearl Beta Funding, a rival to Merchant Funding Services, won an appeal of its own, the landmark usury case in March 2018 that seemingly solidified once and for all the commonly held understanding that such MCA agreements were not usurious.

Despite this, the uncertainty of Volunteer Pharmacy still lingered in the background, that is until now.

On January 29th, 2020 the Appellate Division, 2nd Department, of the Supreme Court of New York, overturned Judge Everett’s decision and ruled in favor of Merchant Funding Services. The panel of judges said they need not even weigh a lot of Everett’s contentions because he was wrong on the underlying procedural issue, that a judgment by confession could be vacated in such an instance without having to go through the normal legal process.

The ruling ultimately provides clarity on the process that determines how a judgment by confession can be vacated. One major impact is that lawyers seeking to invalidate merchant cash advance agreements will no longer have Volunteer Pharmacy as a crutch to rely on.

Former 1 Global Capital CFO Alan Heide Sentenced to 5 Years in Prison

January 17, 2020
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Alan Heide, the former CFO of defunct Hallandale Beach-based 1 Global Capital, was sentenced to 5 years in prison earlier this week for his role in the company’s securities fraud. He is one of three individuals that have pled guilty so far and the first to be sentenced.

The other individuals, attorney Jan Douglas Atlas and former 1 Global COO Steven Allen Schwartz are awaiting their sentencing.

Additional individuals are still expected to be charged.

SEC, US Attorney Charge Steven A. Schwartz in 1 Global Capital Case

January 6, 2020
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handcuffs and moneyNew criminal and civil charges have been filed against an individual in the 1 Global Capital case. This time it’s Steven A. Schwartz, who served as 1 Global’s Director and Chief Operating Officer.

The SEC alleges that Schwartz aided and abetted former CEO Carl Ruderman in carrying out a securities fraud.

The US Attorney for the Southern District of Florida separately alleged that Schwartz engaged in a conspiracy to commit wire fraud and securities fraud.

Schwartz is the third person to be charged criminally in connection with 1 Global Capital’s scheme. Alan Heide and Jan Atlas already pled guilty to their roles in the fraud.

The SEC said of its case against Schwartz:

The complaint further alleges that Schwartz became trustee of a Ruderman family trust in June 2014, and that shortly afterwards, Ruderman had Schwartz execute an agreement conveying ownership of 1 Global to the trust. As alleged, until 1 Global declared bankruptcy in July 2018, Schwartz allowed Ruderman to use the trust to misappropriate several million dollars in investor funds to pay for Ruderman’s luxury lifestyle.

Sentencings in 1 Global Capital Criminal Cases Delayed

December 18, 2019
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The sentencing dates for the two individuals that pled guilty for their part in the the 1 Global Capital mess, have been delayed. Jan Douglas Atlas’s sentencing has been pushed back until March 2020 with a date to be determined, while Alan Heide’s has been rescheduled to Jan 14, 2020.

More Individuals Expected to Be Criminally Charged in 1 Global Capital Case

November 30, 2019
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Hallandale BeachFederal prosecutors have asked a Court to consolidate criminal cases against 1 Global Capital defendants Alan Heide and Jan D. Atlas on the basis that there is substantial overlap between them and that additional individuals are expected to be charged. “Considerable judicial resources may be conserved if, going forward, a single judge is chosen to preside over all 1 Global-related cases,” prosecutors argue. The number of forthcoming defendants was not revealed but has been described as “multiple additional co-conspirators.”

The case, far from over, is being characterized as an active investigation.

Heide, 1 Global’s former CFO, pled guilty on August 23, 2019. He is scheduled to be sentenced on December 18th. Atlas, an attorney who provided fraudulent legal cover for 1 Global via knowingly false opinion letters, pled guilty to 1 count of securities fraud in October. He is scheduled to be sentenced on January 10th.

Hallandale Beach-based 1 Global Capital was once ranked among the largest alternative small business funders by deBanked. That all changed in July 2018 with a sudden bankruptcy filing that revealed concurrent investigations being carried out by the SEC and a US Attorney’s Office.

Prosecutors are calling the company a multi-faceted securities fraud and Ponzi scheme that victimized at least 3,600 investors across the country. While the company took in more than $330 million, $100 million of it is expected to be returned to investors through a bankruptcy court liquidation.

The company’s former chairman and CEO has already consented to judgment with the SEC and agreed to be liable for disgorgement of $32,587,166 + $1,517,273 in interest and a civil penalty of $15,000,000. Shortly thereafter, the SEC reported that he had satisfied the judgment in full with the exception of the stipulation that he sell his condo. Although he has not been criminally charged, prosecutors say that Heide and Atlas both ultimately took direction from, and reported to the company’s former chairman and CEO.

Individuals familiar with the firm may recall that 1 Global Capital was previously reported as being named 1st Global Capital. However, another company bearing the same name sued them for trademark infringment. Since then, news related to the South Florida ponzi scheme have referred to the company by its legal name, 1 Global Capital, LLC.

OCC Believes It’s Time To Fix Madden Issue Once And For All

November 18, 2019
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OCC SealIf a bank makes a legal loan to a consumer and then later sells the debt to a third party, the terms of the loan are still legal right?

“Yes” should be the obvious answer, but in 2015 a federal appeals court said “no.” The case was Madden v. Midland Funding LLC, which started as a credit card debt owed by a consumer to Bank of America at 27% interest and ended as an allegedly illegal loan once the debt was sold to Midland Funding.

The ruling, which deBanked has covered extensively, shook the consumer and business loan markets in New York, Connecticut, and Vermont with its jurisdictional reach. Midland Funding appealed the ruling to the United States Supreme Court but the Court declined to hear the case.

Congress attempted to bring clarity to the lawfulness of the practice with a bill called the Protecting Consumers’ Access to Credit Act of 2017 but failed when the approved House bill never even came up for a vote in the Senate.

On Monday, the Office of the Comptroller of the Currency (OCC) proposed a rule to clarify the “Valid When Made” Doctrine that had been pierced in Madden. “This proposal will address confusion about the effect of a transfer on a loan’s valid interest rate, including confusion resulting from a recent decision from the U.S. Court of Appeals for the Second Circuit (Madden v. Midland Funding, LLC),” OCC wrote in a statement.

A 60-day public comment period will be open once the proposal is published in the Federal Register. To find out how to comment on the rule, click here.