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On November 21, the CFPB and the Federal Reserve Board finalized the annual dollar threshold adjustments that govern the application of Regulation Z (Truth in Lending Act) and Regulation M (Consumer Leasing Act) to credit transactions, as required by the Dodd-Frank Act. Each year the thresholds must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The exemption threshold for 2019, based on the annual percentage increase in the CPI-W, is now $57,200 or less, except for private student loans and loans secured by real property, which are subject to TILA regardless of the amount.
FTC announces charges against auto dealerships for falsifying consumer information on auto financing documents
On August 1, the FTC announced charges against a group of four auto dealers (defendants) with locations in Arizona and New Mexico near the Navajo Nation’s border alleging, among other things, that the defendants advertised misleading discounts and incentives through their vehicle advertisements, and falsely inflated consumers’ income and down payment information on certain financing applications. The charges brought against the defendants allege violations of the FTC Act, the Truth in Lending Act, and the Consumer Leasing Act. According to the complaint, by allegedly falsifying the customers’ income and down payments, the defendants “inaccurately made consumers appear more creditworthy” on the false financing applications. Moreover, the FTC claims the defendants often prevented consumers from reviewing the falsified information provide in the financing applications prior to signing. As a result, credit was extended to consumers—many of whom are members of the Navajo Nation—who then subsequently “defaulted at a higher rate than properly qualified buyers.” Furthermore, the complaint asserts that the defendants’ deceptive advertising practices concealed the true nature and terms of the financing or leasing offers, and were in violation of federal law for failing to disclose the required terms. The complaint seeks, among other remedies, a permanent injunction to prevent future violations, restitution, and disgorgement.
Auto finance company agrees to $19.7 million preliminary class action settlement over extra lease fees
On June 15, the lead plaintiff filed a motion in the U.S. District for the Southern District of Florida for preliminary approval of an approximately $19.7 million class action settlement between a group of consumers and an auto finance company over allegations that extra fees were charged beyond the set purchase option price disclosed in certain vehicle lease contracts. According to the motion, the lead plaintiff alleged that after he chose to purchase his vehicle at the end of his lease term and he was charged extra third-party fees not included in his original lease contract. The class action complaint alleges violations of the Consumer Leasing Act and breach of contract. The settlement class consists of consumers nationwide who entered into certain lease contracts with the company, purchased their leased vehicle after June 4, 2009, and that were required to pay a documentary or dealer fee not disclosed in the lease contract, which allegedly averages about $238 per consumer. The settlement would allow prospective opt-in members to submit a claim for repayment of 100% of the extra fees charged. The $19.7 million settlement figure was determined using a statistically significant sample of the transactional records available and includes up to $2.95 million in attorneys costs and fees. The settlement is awaiting the court’s approval.
On May 17, in response to a request from the CFPB, the FTC transmitted a letter summarizing its 2017 enforcement activities related to Regulation Z (TILA), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Fund Transfer Act) for the CFPB’s use in preparing its 2017 Annual Report to Congress. The FTC highlighted numerous activities related to the enforcement of the pertinent regulations, including:
- Payday Lending. The FTC acknowledged the continued litigation against two Kansas-based operations and their owner for allegedly selling lists of counterfeit payday loan debt portfolios to debt collectors in violation of the FTC Act, previously covered by InfoBytes here.
- Military Protection. The FTC identified the July 2017 military consumer financial workshop and the launch of the new Military Task Force (previously covered by InfoBytes here and here) among the activities the agency engaged in related to protecting the finances of current and former members of the military. The FTC also noted continued participation in the interagency group working with the Department of Defense on amendments to its rule implementing the Military Lending Act.
- “Negative Option.” For actions under the Regulation E/EFTA, the FTC highlighted numerous “negative option” enforcement actions, in which the consumer agrees to receive goods or services from a company for a free trial option, but if the consumer does not cancel before the trial period ends, the consumer will incur recurring charges for continued goods or services. Among the actions highlighted is a case in which the FTC imposed a $179 million judgment (suspended upon the payment of $6.4 million) settling allegations that the online marketers’ offers of “free” and “risk free” monthly programs for certain weight loss and other products were deceptive.
- Auto Loans. The letter highlighted, among others, the FTC action against a Southern California-based group of auto dealerships that allegedly violated a prior consent order with the FTC by misrepresenting the cost to finance or lease a vehicle, previously covered by InfoBytes here.
The Federal Reserve Board (Fed) issued a final rule on December 22 to repeal Regulation C, Home Mortgage Disclosure (HMDA), and a proposed rule to amend Regulation M, Consumer Leasing Act (CLA) to reflect the transfer of certain rulemaking authority to the CFPB. Regulation C is being repealed because the CFPB has issued its own final HMDA rules (previously covered by InfoBytes here) that supersede the Fed’s version. The proposed amendments to Regulation M implement the Dodd-Frank Act’s provisions on transferring CLA rulemaking authority to the CFPB, with the exception of retaining the Fed’s authority to issue rules for motor vehicle dealers that are predominantly engaged in the sale/leasing and servicing of motor vehicles and are not otherwise subject to the CFPB’s regulatory authority.
The repeal of Regulation C is effective 30 days after publication in the Federal Register. Comments on the proposed amendments to Regulation M are due by March 5, 2018.
On June 1, the FTC announced that it submitted its 2016 Annual Financial Acts Enforcement Report to the CFPB. The report—requested by the Bureau for its use in preparing its 2016 Annual Report to Congress—covers the FTC’s enforcement activities related to compliance with Regulation Z (Truth in Lending Act or TILA), Regulation M (Consumer Leasing Act), and Regulation E (Electronic Funds Transfer Act or EFTA), as well as its initiatives to engage in research and consumer education.
According to the report, the FTC’s enforcement actions in 2016 concerning TILA involved automobile purchasing and financing, payday loans, and financing of consumer electronics. Regarding mortgage-related credit activity, the report highlights continued litigation in two cases involving mortgage assistance relief services involving “forensic audit scams.” Furthermore, the FTC continued its consumer and business education efforts on issues related to consumer credit transactions in the following areas: military lending, auto sales and financing, payday lending, marketplace lending, and consumer disclosures and testing.
Regarding the Consumer Leasing Act, the report noted the FTC had issued a final administrative consent order for deceptive advertising practices and failure to disclose key lease offer terms. The FTC also filed two federal court actions against automobile dealers. The FTC also engaged in research and policy development and educational activities in this area.
Concerning the EFTA, the FTC reported six new or ongoing cases, including four cases alleging violations in the context of “negative option” plans, in which a consumer agrees to “receive various goods or services from a company for a trial period at no charge or at a reduced price” but later incurs unauthorized recurring charges after the end of the trial period, in violation of the EFTA. The remaining two cases involved payday lending and consumer electronics financing. The FTC also engaged in rulemaking, research, policy development, and educational activities involving the EFTA.
On March 14, the FTC announced that it reached a settlement with a Los-Angeles-based auto dealership group over charges that the group engaged in deceptive and unfair sales and financing practices, deceptive advertising, and deceptive online reviews. The settlement, in the form of a stipulated final order, requires that the auto group pay more than $3.6 million in consumer remediation and is pending approval by the U.S. District Court for the Central District of California. The complaint, which was filed in September of last year, also alleged the defendants participated in deceptive and unfair practices related to add-on products that consumers did not authorize. Furthermore, the FTC claimed the defendants violated TILA and Regulation Z, as well as the Consumer Leasing Act and Regulation M, for “failing to clearly disclose required credit information and lease information in their advertising.” The proposed settlement order prohibits “the defendants from making misrepresentations relating to their advertising, add-on products, financing, and endorsements or testimonials,” and also bars “the defendants from engaging in other unlawful conduct when a sale is cancelled.”
Federal Reserve and CFPB Propose Method for Adjusting TILA and Consumer Leasing Act Exemption Thresholds
On July 22, the CFPB and the Federal Reserve released proposed rules detailing the method for adjusting the dollar thresholds in Regulation Z (TILA) and Regulation M (Consumer Leasing Act/CLA) for exempt consumer credit and lease transactions. Pursuant to the Dodd-Frank Act, the exemption thresholds in TILA and the CLA are adjusted annually based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The recently released proposals seek to clarify, among other things, that in the years following a year in which there is no annual percentage increase in the CPI-W, the CFPB and Federal Reserve will not adjust the exemption thresholds. Comments on the proposals are due within 30 days of publication in the Federal Register.
On July 14, the FTC announced the approval of a final consent order against two Ohio-based auto dealers to resolve allegations that they failed to make certain advertising disclosures in violation of the FTC Act, the Consumer Leasing Act (CLA), and the CLA’s implementing Regulation M. Specifically, according to the FTC’s November 2015 complaint, the auto dealers’ lease advertisements (i) failed to disclose, or adequately disclose, that typical consumers would not qualify for advertised terms; and (ii) displayed a monthly payment amount without clearly and conspicuously disclosing terms required by the CLA and Regulation M. Pursuant to the consent order, the auto dealers are prohibited from, among other things, (i) advertising the amount of any payment, or the length or any payment term, without also clearly and conspicuously disclosing all related qualification restrictions, such as those based on the consumer’s credit score; (ii) misrepresenting payment terms; and (iii) advertising payment terms without clearly and conspicuously disclosing terms required by the CLA and Regulation M.
On June 6, the FTC announced that it submitted its 2015 Annual Financial Acts Enforcement Report to the CFPB. The report covers the FTC’s enforcement activities related to compliance with Regulation Z (TILA), Regulation M (Consumer Leasing Act or CLA), and Regulation E (Electronic Fund Transfer Act or EFTA), as well as the FTC’s related activities in rulemaking, research, policy development, and consumer/business education related to TILA. According to the report, the FTC’s enforcement efforts in 2015 concerning TILA involved mortgage-related credit and non-mortgage credit, including automobile purchases and financing, car title loans, payday lending, and consumer electronics financing. Regarding mortgage-related credit activity, the report highlights continued litigation involving mortgage assistance relief services/forensic audit scams: “[i]n these scams, mortgage assistance relief providers offer, for a substantial fee, to review or audit the mortgage documents of distressed homeowners to identify violations of TILA, Regulation Z, and other federal laws.” The report further noted that under Regulation M and as part of the FTC’s Operation Ruse Control sweep on the auto industry, the FTC issued five final administrative consent orders and one consent agreement for public comment. Finally, regarding the FTC’s enforcement activities related to compliance with the EFTA, the report states that four of the FTC’s seven cases involving the EFTA in 2015 arose in the context of “negative option” plans, where consumers agreed to a trial period in which they received certain goods or services for no additional charge or at a reduced price, but later incurred recurring charges due to failure to cancel before the trial period ended.
- Jeffrey S. Hydrick to discuss "State legislative update" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to speak at the "Business model primer" at the NMLS Annual Conference & Training
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jessica L. Pollet to discuss "Law & compliance speedsmarts" at the American Financial Services Association Law & Compliance Symposium
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program