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CFPB reports on the relationship between discount points and interest rates
On April 5, the CFPB issued a report on the relationship between trends in discount points and interest rates. The report used HMDA data between Q1 of 2019 and Q3 of 2023 when interest rates were at “record-highs” and before the Federal Reserve announced its intention to lower interest rates. The CFPB found that (i) the majority of borrowers paid discount points, (ii) more borrowers paid discount points as interest rates increased, and (iii) borrowers with low credit scores were even more likely to pay discount points. Delving deeper into the data, 87 percent of borrowers with cash-out refinances paid discount points (up from 61 percent in 2021), and borrowers with cash-out refinance loans paid twice the number of discount points compared to other borrowers (with a median of 2.1 points per loan). Additionally, almost 77 percent of FHA borrowers with a credit score below 640 paid discount points compared to 65 percent of all FHA borrowers. Considering these trends, the CFPB will plan to monitor the use of discount points and weigh the advantages against the potential risks to borrowers.
District Court rules against CFPB on Prepaid Rule disclosure requirement
On March 28, the U.S. District Court for the District of Columbia (D.D.C.) ruled in favor of a fintech digital wallet provider by granting its motion for summary judgment, denying the CFPB’s cross-motion, and vacating the CFPB’s Prepaid Rule’s short-form disclosure requirements for digital wallets. The suit focused on the applicability of the Prepaid Rule’s short-form disclosure requirements to digital wallet products. The plaintiff sued the CFPB, arguing the CFPB’s Prepaid Rule was arbitrary and capricious because, unlike for general-purpose reloadable (GPR) products, the CFPB failed to provide a “well-founded, non-speculative reason for subjecting digital wallets” to the Prepaid Rule’s short-form disclosure regime.
The CFPB’s Prepaid Rule mandated that pre-acquisition fee disclosures, which were intended to apply to GPR cards, be required for digital wallets––i.e., digital wallet providers would be required to provide consumers with a pre-acquisition fee disclosure in a formatted “short form.” While the judge agreed that this makes sense as applied to GPR products, digital wallet products were fundamentally different from GPRs and were not primarily “used to access funds or to function as a substitute checking account.” While the CFPB’s Advanced Notice of Proposed Rulemaking, did not initially include digital wallets, in the final Prepaid Rule, the CFPB included digital wallets for three reasons: (1) the CFPB reasoned that the Prepaid Rule should apply to digital wallets since digital wallets can carry funds (just like GPRs), and the fee structure “may not hold true in the future”; (2) the CFPB argued that the Prepaid Rule filled a regulatory gap for digital wallets; and (3) the CFPB claimed it “cast a wide net” on purpose to avoid a “patchwork regime.”
In response, the plaintiff argued that the disclosure requirement was arbitrary and capricious due to the Bureau having no rational justification for including digital wallets in the Prepaid Rule. Further, it was arbitrary and capricious because the CFPB did not comply with its role under Dodd-Frank by assessing the costs and benefits of the Rule. Finally, the plaintiff argued that the short-form disclosure regime violated the First Amendment.
While declining to rule on First Amendment issues, the court held that the CFPB lacked a “rational justification” for subjecting digital wallets to the Prepaid Rule’s short-form disclosure requirement, agreeing that the CFPB’s requirement was arbitrary and capricious, and that it had no basis for including digital wallets because they were materially different products. The judge also found the CFPB’s cost-benefit analysis (as mandated by Dodd-Frank) was deficient, as the “general” cost-benefit analysis did not fit for digital wallets.
District Court grants full remedies to CFPB, State AGs
On March 31, the U.S. District Court for the Western District of Virginia entered an order granting the plaintiff state attorneys general and CFPB’s requested remedies in full against a defendant accused of violating consumer protection laws in administering “immigration bonds” for indigent consumers facing deportation. As previously covered by InfoBytes, in 2021 the CFPB, and the Massachusetts, New York, and Virginia State Attorneys General filed a 17-count complaint against the defendant, a subsidiary of a bond service for non-English speaking U.S. Immigration and Customs Enforcement (ICE) detainees. The complaint accused the defendant of misrepresenting the cost of immigration bond services and deceiving migrants into continuing to pay monthly fees by making false threats of deportation for failure to pay. Last May, the court entered default judgment against defendants (covered by InfoBytes here). In the court’s most recent order, it granted the plaintiff’s request for injunctive relief, stating that the CFPB met the standard for injunctive relief under the CFPA, and it would “undoubtedly serve the public interest.” The court also noted that the plaintiffs’ claims supported injunctive relief under state laws as well. The order also included (i) $230.9 million in restitution to the CFPB; (ii) a $111 million civil money penalty to the CFPB; (iii) a $7.1 million civil money penalty to Virginia; (iv) a $3.4 million civil money penalty to Massachusetts; and (v) a $13.89 million civil money penalty to New York.
CFPB, FTC submit amicus brief in FCRA case
On March 29, the CFPB and the FTC filed an amicus brief in the U.S. Court of Appeals for the Eleventh Circuit, arguing that the FCRA mandated consumer reporting agencies (CRAs) when a consumer challenged the “completeness or accuracy of any item or information” in their file, must perform a “reasonable reinvestigation.”
In the underlying case, a consumer claimed she identified multiple inaccuracies in her credit report held by the defendant CRA, including issues with her name, address, and Social Security number. She allegedly contacted the defendant three times to dispute these errors, but the defendant directed her to resolve the issues with the misinformation sources and did not conduct its own reinvestigation as the consumer believed was required by the FCRA.
The consumer then filed a lawsuit against the defendant CRA for not performing the reinvestigation. The district court acknowledged that the defendant should have completed the reinvestigation under the FCRA but nonetheless concluded that the defendant did not violate the statute because it did not reasonably interpret that the FCRA did not require a reinvestigation.
The case will now be under the appeal process and the CFPB and FTC have submitted a joint amicus brief arguing that the FCRA required a CRA to reinvestigate a consumer’s dispute about personal identifying information, and that the district court correctly determined that a reinvestigation was required. The brief also argued that the district nonetheless erred in concluding that the defendant did not negligently or willfully violate the FCRA because the defendant’s interpretation of the FCRA was not “objectively reasonable.”
CFPB sends letters of support for New York’s pending unfair and abusive conduct prohibition
On March 19, the CFPB published a blog post providing input on New York State’s proposed prohibition on unfair and abusive acts, urging passage of A 7138 and S 795, companion bills that are titled the “Consumer and Small business Protection Act” (the “Acts”). The blog post followed the CFPB’s delivery of letters in support of the Act to Governor Hochul, state senators, and state assembly members.
The Acts would expand Section 349 of New York’s general business law to prohibit unfair or abusive acts or practices, in addition to the existing prohibition on deceptive acts or practices. The Acts would also give the New York attorney general authority to bring an action for unfair, unlawful, deceptive, or abusive acts or practices, “regardless of whether or not the underlying violation is directed at individuals or businesses, is consumer-oriented, or involves the offering of goods, services, or property for personal, family or household purposes,” and would give “any person who has been injured by reason of any violation of this section” authority to bring “an action to recover one thousand dollars and his or her actual damages, if any, or both such actions, … regardless of whether or not the underlying violation is consumer-oriented, has a public impact or involves the offering of goods, services or property for personal, family or household purposes.”
The Acts defined an act or practice as unfair “when it causes or is likely to cause substantial injury, the injury is not reasonably avoidable, and the injury is not outweighed by countervailing benefits.” They provided that an “act or practice is deceptive when the act or practice misleads or is likely to mislead a person and the person’s interpretation is reasonable under the circumstances,” and that an act or practice is abusive when “it materially interferes with the ability of a person to understand a term or condition of a product or service,” or “takes unreasonable advantage of: (A) a person’s lack of understanding of the material risks, costs, or conditions of a product or service; (B) a person’s inability to protect his or her interests in selecting or using a product or service; or (C) a person’s reasonable reliance on a person covered by this section to act in his or her interests.” The Bureau’s letters to the state governor and legislature noted that the “reasonable reliance” component of the Acts is “critical,” and like the federal prohibition that “recognizes that people often reasonably expect that certain businesses will help them make difficult financial decisions, and there is potential for betrayal or exploitation of that trust.” The CFPB also mentioned that it has brought numerous actions based on that particular component.
The Acts provided that “standing to bring an action under this section, including but not limited to organizational standing and third-party standing, shall be liberally construed and shall be available to the fullest extent otherwise permitted by law.” Further, “[a]ny individual or non-profit organization entitled to bring an action” under the Acts “may, if the prohibited act or practice has caused damage to others similarly situated, bring an action on behalf of himself or herself and such others to recover actual, statutory and/or punitive damages or obtain other relief as provided for in” the Acts. A nonprofit also may bring an action on behalf of itself, its members, or members of the public that have been injured by a violation of the Acts. Nonprofits may seek the same remedies and damages as individuals.
CFPB warns remittance transfer providers against falsely advertising the costs and speed of transfers
On March 27, the CFPB issued a circular cautioning remittance transfer providers against falsely advertising the costs or speed of sending transfers to avoid violating the CFPA’s prohibition on deceptive acts or practices. The CFPB would administer and enforce the Remittance Rule under the EFTA, but the Bureau noted that remittance providers also can be liable under the CFP Act for deceptive marketing practices, regardless of whether they comply with the Remittance Rule’s disclosure requirements. Through the circular, the CFPB warned against falsely marketing “no fee” or “free” services if the remittance transfer provider actually charges a fee, noting that “[w]ith respect to digital wallets or other similar products, it can be deceptive to market a transfer as ‘free’ if the provider imposes costs to convert funds into a different currency or withdraw funds,” and that “[i]t may also be deceptive to market international money transfers as ‘free’; if the provider is imposing costs on consumers through the exchange rate spread.” The Bureau also warned against “burying” promotional conditions in fine print, and falsely advertising how long a transfer will take especially if transfers may take longer to reach recipients. The circular would apply to traditional international money transfer providers, as well as “digital wallets” that send money internationally from the U.S. and would be part of the Bureau’s initiative to “rein in” alleged “junk fees.”
CFPB wins approval to move credit card late fee case to Washington, D.C.
On March 28, the U.S. District Court for the Northern District of Texas granted the CFPB’s motion to transfer a case to the U.S. District Court for the District of Columbia after identifying several concerns regarding litigating the case in the Texas venue. This case has been brought by multiple trade organizations to challenge the CFPB’s attempt to alter the structure and amount of credit card late fees under its alleged authority under the CARD Act, covered by InfoBytes here. The court agreed to transfer the case after finding that both defendants, along with three of the six plaintiffs, resided in Washington where the rule at issue was promulgated; comparatively, only one of the six plaintiffs resided in Fort Worth.
The court analyzed both private- and public-interest factors. On private-interest factors, the court agreed that Washington was a more practical venue, noting that eight of the ten attorneys representing the parties list offices in Washington, while only one plaintiff was headquartered in Texas. The court concluded that plaintiffs also have not identified any substantial or practical issues with this case being held in Washington. On public interest factors, the court weighed the comparative dockets and noted that, on average, a case in Washington would be resolved faster than in Texas. The court also reasoned that there was a strong interest in having the case decided in Washington. “The Rule at issue in this case was promulgated in Washington D.C., by government agencies stationed in Washington D.C., and by employees who work in Washington D.C. Most of the Plaintiffs in this case are also based in Washington D.C. and eighty percent of the attorneys in this matter work in Washington D.C. Thus, the [U.S. District Court for the District of Columbia] has a stronger interest in resolving this dispute, as it is the epicenter for these types of rules and challenges thereto.”
CFPB, federal and state agencies to enhance tech capabilities
On March 26, the CFPB announced as a part of a coordinated statement with other federal and state agencies, the intent to enhance its technological capabilities. As part of this initiative, the CFPB will be hiring more technologists to help enforce laws and find remedies for consumers, workers, small businesses, etc. These technologists will join interdisciplinary teams within the CFPB to monitor and address potential violations of consumer rights within the evolving tech landscape, particularly considering the growing attention to generative artificial intelligence (AI). The CFPB's technologists will be tasked with identifying new technological developments, recognizing potential risks, enforcing laws, and developing effective remedies. CFPB Director Rohit Chopra emphasized the essential role of technology in the Bureau’s efforts to regulate data misuse, AI issues, and big tech involvement in financial services. Chopra and Chief Technologist Erie Meyer remarked that the CFPB has integrated technologists into its core functions, with these experts now actively involved in supervisory examinations, enforcement actions, and other regulatory proceedings. They also note that the CFPB has researched how emerging technologies, such as generative AI and near-field communication, are used in consumer finance. To foster a competitive and “law-abiding” marketplace, Chopra and Meyer also note that the CFPB will continue to issue policy guidance to assist firms with understanding legal obligations.
CFPB submits brief alleging “forum shopping,” banking groups defend their choice of venue
On March 12, the CFPB submitted a brief to the U.S. District Court for the Northern District of Texas in opposition to a motion for preliminary injunction filed by a group of industry associations, urging the court to block the implementation of a new rule that would limit the ability of large credit card issuers to charge late fees (covered by InfoBytes here).
The CFPB defended the rule by stating that it has considered all relevant factors and that the rule aimed to prevent credit card issuers from charging excessive late fees. The CFPB also argued that the case is not properly situated, as the plaintiffs lack a significant connection to the district in which they filed the lawsuit and do not have the standing to sue on behalf of others, stating “it seems not one large card issuer wants its name on the marquee… [t]he rule applies to only the largest card issuers—approximately 30–35 total entities nationwide. Plaintiffs have not identified a single one that is based in this District.” The CFPB suggested that plaintiffs have engaged in “forum shopping”—i.e., choosing this court because they believe it will be more favorable to their case, despite a lack of substantial connection to the district. The brief stated that the plaintiffs are unlikely to succeed on the merits of their claims under the Administrative Procedure Act because they failed to establish proper venue and associational standing. Additionally, the CFPB argued that an injunction was not warranted because the rule was designed to protect consumers and that preventing its implementation would be against the public interest.
On March 13, plaintiffs submitted a brief defending its motion for preliminary injunction and their choice of venue in Texas as part of an ongoing suit against the CFPB. The brief stated that according to law, the venue was appropriate if one plaintiff resided in the district, which applied to one of the Texas-based chamber plaintiffs, and if a significant portion of the related events occurred in the district, which is true as the rule impacted the local area. That plaintiff argued they have standing to sue because the issues are relevant to its “mission of cultivating a ‘thriving business climate in the Fort Worth region’” and its trade members included credit card issuers affected by the rule. Despite the CFPB’s counterarguments that the plaintiff lacked standing and that a transactional venue was not applicable, the plaintiff asserted it represented members that would be directly impacted by the rule, fulfilling the requirements for standing. Additionally, plaintiff contended that the rule's effects within the district justify the court's jurisdiction over the case.
Senator Romney et al. pen letter confirming nonbank lending regulations, specifically on the ILC charter
On March 13, Senator Mitt Romney (R-UT) with 11 other senators penned a brief letter to the heads of the FDIC, OCC, and CFPB that supported the FDIC’s regulation of the industrial loan company (ILC) charter but expressed concerns about delay in processing ILC charter applications. According to the letter, ILCs provide “critical access to credit opportunities within the regulated banking sector.” The letter stated the senators “strongly oppose” regulatory actions against lawful ILC charter applications that may further delay FDIC review and decision-making.