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CFPB, Mass. AG secure $50M from credit repair co., owner
Recently, the U.S. District Court for the District of Massachusetts granted summary judgment in favor of the CFPB and the Massachusetts AG, against defendant credit repair company and its owner. As previously covered by InfoBytes, the CFPB and Massachusetts AG filed a lawsuit in 2020 against defendants for allegedly engaging in deceptive and abusive telemarketing acts or practices in violation of the Telemarketing Sales Rule (TSR), the CFPA, and Massachusetts consumer protection laws by purporting that their credit-repair services could help consumers improve their credit scores and fix “unlimited” amounts of negative items from consumers’ credit reports to increase enrollment.
The court found that the defendants violated the TSR’s advance-fee provision because it offers credit-repair services without specifying an end date for performance and it charges consumers before delivering the results promised. Because defendants violated the TSR, the court held this constituted an unfair, deceptive, or abusive act in violation of the CFPA. The court additionally found that defendants violated Massachusetts state laws, Chapter 93A and the MA-CSO, that prohibit unfair and deceptive acts or practices. As a result, defendants must pay $31.7 million in fees sand $9.6 million each in civil money penalties. The court also granted the CFPB and Massachusetts AG’s request for injunctive relief.
CFPB consent order bans company from arbitrating disputes
On October 10, the CFPB issued a consent order against a California-based private arbitration company that offers an online dispute resolution platform, for alleged issues related to its student loan collections. According to the CFPB, in April 2022, respondent allegedly commenced arbitration proceedings against consumers who had not provided consent, in violation of the CFPA. The proceedings were related to consumers’ alleged default on income share loans extended by an online training program provider, which was shut down following a separate CFPB and 11-state enforcement action (previously covered in InfoBytes, here and here). The company was allegedly aware it lacked jurisdiction over the claims because none of the income share loans contained an arbitration clause permitting arbitration by this company.
Additionally, the Bureau found that the company allegedly committed deceptive acts and practices by misrepresenting its neutrality, the nature of the arbitration proceedings, and the consequences of consumers’ actions or inactions. For example, the company allegedly falsely represented itself as a neutral and impartial forum for consumer debt arbitrations and failed to disclose its financial alignment with the creditor that filed the claim against the consumer. Furthermore, the Bureau found that the company allegedly engaged in unfair practices by unlawfully attempting to bind consumers to its terms of service and platform rules. The company has not admitted or denied the CFPB’s claims.
FDIC releases report on small business lending activity
On October 2, the FDIC issued its 2024 Small Business Lending Survey Report (SBLS), based on data collected in 2022. The survey provides insights into small business lending practices, including loan approval processes, geographic markets, competition, use of financial technology, and lending to start-ups.
According to the report, small business lending is “relationship-oriented and staff-intensive,” centered around local branch offices, even as banks are adopting new technologies. The survey revealed that approximately half of U.S. banks are using or considering financial technology in their lending processes, but in-person interactions remain important. Furthermore, in making credit decisions, small banks rely more on “soft” information from relationships, while large banks rely more on “hard” quantitative data from credit bureaus, especially for smaller loans. Additionally, the report showed that most banks make small business loans of at least $1 million, with half making loans up to $3 million.
The FDIC also found that approval times for small business loans are generally fast, with many banks able to approve simple loans within one to five business days. Branch locations and on-site visits are “highly valu[ed]” for maintaining lending relationships, with competition with credit unions and non-bank financial technology companies increasing. Lastly, the FDIC highlighted that large banks often use government guarantees for start-up loans, while small banks rely on information gathered from meeting applicants.
OCC bulletin provides guidance on commercial lending refinance risk
On October 3, the OCC issued Bulletin 2024-29, providing guidance on managing credit risk associated with refinancing commercial lending. The bulletin applies to all banks with commercial loans and highlights the increased risk of borrowers being unable to replace existing debt under reasonable terms, particularly in rising interest rate environments and underperforming markets. According to the OCC, refinance risk primarily affects loans with remaining principal balances at maturity and “borrowers who rely on recurring debt for their capital structure or business operations,” with loan types such as “interest-only loans, commercial real estate loans, leveraged loans, and revolving working capital lines.”
The bulletin emphasizes the importance of banks having processes to “identify, measure, monitor, and control refinance risk at both the transaction and portfolio levels.” Effective management practices include “assessing refinance risk at underwriting, during ongoing monitoring, and near maturity.” Banks are encouraged to use multivariable stress testing to evaluate the potential impact of changing borrower financial conditions or market conditions on borrowers’ ability to refinance. Additionally, the bulletin advises banks to structure loans to mitigate refinance risk by setting appropriate underwriting standards and covenants.
At the portfolio level, banks should monitor the volume and timing of upcoming loan maturities and evaluate refinance risk when determining credit risk ratings. The bulletin also suggests banks have “refinance plans in place for borrowers with near-term refinancing needs” and consider refinance risk when developing loan workout strategies.
Agencies release annual adjustments to thresholds in TILA regulations, smaller loan exemption
On October 4, the CFPB and the Fed announced adjusted dollar thresholds for 2025 that determine whether certain consumer credit and lease transactions are subject to protections under TILA Regulation Z and Consumer Leasing Regulation M. These thresholds are adjusted annually based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), as required by law. For 2025, the thresholds have been set at $71,900 or less, reflecting a 3.4 percent increase in the CPI-W as of June 1. Generally, consumer credit transactions and consumer leases at or below this amount will be subject to the regulations’ protections, though private education loans and loans secured by real property are subject to Regulation Z regardless of the loan amount.
On the same day, the CFPB, Fed and OCC also released thresholds for higher-priced mortgage loans subject to special appraisal requirements. The threshold will increase from $32,400 to $33,500, effective January 1, 2025. The adjustment is also based on a 3.4 percent increase in the CPI-W as of June 1. The agencies noted that, pursuant to Dodd-Frank, special appraisal requirements were added to TILA for higher-priced mortgage loans, mandating that creditors obtain a written appraisal, which includes a physical inspection of the home’s interior, before issuing a higher-priced mortgage loan.
CFPB publishes Fall 2024 supervisory highlights
On October 7, the CFPB published a special edition of its Supervisory Highlights focused on the auto finance market, which describes findings from examinations generally conducted between November 1, 2023 and August 30. The report highlights examiner observations such as the following:
Origination Disclosures:
- Subprime auto loan originators allegedly engaged in deceptive marketing by advertising “as low as” specified APR rates that consumers “had no reasonable chance of qualifying for…”
- Auto-loan originators allegedly violated TILA and its implementing Regulation Z, by inaccurately disclosing the terms for prepayment penalties.
Repossession Activities:
- Servicers allegedly wrongfully repossessed vehicles despite consumers making timely payments or obtaining loan modifications or other payment relief and without valid liens.
- The CFPB found that servicers allegedly engaged in unfair acts or practices by repossessing vehicles when: (i) representatives or service providers failed to cancel orders to repossess vehicles, or act on those cancellations, when consumers had made payments or obtained extensions that should have prevented repossessions; and (ii) consumers had requested, or the servicer had approved, a COVID-19 related loan deferment or loan modification, consumers had otherwise made timely payments, or consumers made arrangements to pay an amount sufficient to cancel the repossession.
Servicing Practices:
- Servicers allegedly misapplied payments on post-maturity loans, leading to late fees and extended principal balances.
- There were allegedly excessive delays in providing vehicle titles after loan payoff.
Add-on Products:
- Subprime auto-finance companies allegedly collected and retained amounts for optional add-on products that consumers did not agree to purchase.
- GAP products were allegedly financed on salvage vehicles, although there is an exclusion for salvage vehicles.
- Servicers allegedly imposed “onerous requirements” for canceling add-on products and failed to honor contractual cancellation rights.
- Refunds of unearned premiums for add-on products were allegedly not ensured upon early termination, and when provided, were often inaccurately calculated or delayed.
Furnishing Deficiencies:
- Auto lenders and servicers allegedly furnished inaccurate information to credit reporting companies, violating the FCRA.
- Auto furnishers allegedly significantly delayed correcting and updating inaccurate information.
The report also highlights recent enforcement actions and recent supervisory program developments, such as the issuance of BNPL Product FAQs and an advisory opinion on consumer protections for home sales financed under contracts for deeds.
OCC files amicus brief supporting a preliminary injunction on the Illinois’ Interchange Fee Prohibition Act
On October 2, the OCC filed an amicus brief supporting several banking associations’ motion for a preliminary injunction against the Illinois Interchange Fee Prohibition Act (IFPA or the Act) in the U.S. District Court for the Northern District of Illinois. As previously covered by InfoBytes, the Governor of Illinois signed into law the IFPA banning credit or debit card issuers and any other entity that facilitates or processes electronic payments from charging an interchange fee on the tax or gratuity of a transaction. Under the IFPA, the Act prohibits banks and others involved in an electronic payment transaction (except the merchant) from transferring or using data from that transaction except to facilitate or process the transaction, or as required by law. Several bank associations quickly challenged this law to prevent its implementation, seeking a preliminary injunction and asking the court to declare the Act preempted, unconstitutional and invalid (covered by InfoBytes here).
The OCC argued the IFPA’s restrictions on interchange fees and data usage significantly interfere with national banks’ federally authorized powers under the National Bank Act (NBA) to process debit and credit card transactions and charge fees for those services. The OCC emphasized the IFPA’s prohibition on charging interchange fees on tax and gratuity portions of transactions and its limitations on the use of transaction data would impose operational burdens on national banks and could disrupt the national payment system. The OCC contended that such state-level restrictions could lead to increased costs, reduced services and weakened fraud protection for consumers, ultimately fragmenting the nationwide payments system.
House Financial Services Com. scrutinizes Basel III Endgame proposal
On September 25, the U.S. House Financial Services Committee held a hearing to scrutinize the Basel III Endgame proposal, which has faced significant criticism from various stakeholders. Rep. Andy Barr (R-KY) opened the hearing by highlighting that 97 percent of the comments on the proposal were negative, with 86 percent coming from outside the banking system. He emphasized that the proposal, initially a reaction to the March 2023 bank issues, could harm mortgage markets and tax credits.
Rep. Bill Foster (D-IL) countered by recalling the 2008 financial crisis and the importance of adequate capital requirements to prevent systemic failures. He noted that the Basel III recommendations need to balance capital requirements to ensure financial stability without stifling economic growth. Foster expressed concerns about the premature nature of the hearing, given that the committee and the public had not yet seen the text of the updated proposal.
The Fed’s Vice Chair for Supervision, Michael Barr, discussed a few changes to the Basel III Endgame proposal in a speech earlier this month. As previously covered by InfoBytes, Barr focused on how the rules may no longer apply to banks with assets between $100 billion and $250 billion. Proposed revisions to the globally-systematically important bank surcharge aim to address issues such as “window dressing” and “cliff effects.”
Lawmakers and witnesses debated the adequacy of current capital requirements, the potential impact of the Basel III Endgame proposal on various sectors, and the need for a more data-driven and transparent approach to rulemaking. Concerns were raised about potential negative effects on small businesses and consumers, and the importance of maintaining U.S. competitiveness in global markets. The hearing underscored the need for a careful and measured approach to regulatory changes.
CFPB launches public comment process for open banking standard setter recognition
On September 24, the CFPB initiated a public comment process for recognizing organizations as open banking standard setters. The first application open for public comment was from a financial data exchange company. The CFPB outlined five qualifications for organizations seeking recognition as standard-setting bodies: (i) openness; (ii) transparency; (iii) balanced decision-making; (iv) consensus; and (v) due process and appeals. The CFPB invites public comments on the merits of applications under these criteria. To review the company's application and submit comments, the public can visit the CFPB’s Applications for Open Banking Standard Setter Recognition webpage.
FDIC releases final Statement of Policy on bank merger transactions
On September 17, the FDIC Board approved its Final Statement of Policy on Bank Merger Transactions (SOP), updating the guidelines for evaluating bank mergers. The OCC recently released its final rule on the BMA to provide clearer guidelines for institutions to align the regulatory framework with current processes (covered by InfoBytes here). The FDIC’s final SOP addressed the scope of transactions requiring the FDIC’s approval, the process for evaluating merger applications, and the principles that guide the FDIC’s consideration of the applicable statutory factors as set forth in the BMA.
The final SOP updated the FDIC’s procedures for evaluating bank merger applications. The BMA prohibits a bank from engaging in a merger without regulatory approval. The SOP emphasized the importance of pre-filing meetings, complete applications and public feedback, including by providing those bank transactions of $50 billion or more in total assets be “subject to public meetings,” and $100 billion or more be “subject to added scrutiny” regarding impact on U.S. financial stability. It also retained the FDIC’s authority to deny any merger application or act on applications where statutory factors are not favorably resolved.
Additionally, the SOP outlined circumstances that could lead to unfavorable findings, such as non-compliance with regulations or unsafe conditions, while also clarifying that in some situations, mergers may result in less financial risk than the institutions would pose individually. Furthermore, the SOP communicated the FDIC’s expectation that mergers will result in a better ability of the resulting IDI to meet community needs.
The SOP addressed the adjudication process for merger applications, emphasizing the importance of public feedback and the FDIC’s independent analysis of competitive factors. Additionally, the SOP included provisions for evaluating interstate mergers, non-bank mergers, and mergers with operating non-insured entities, ensuring these mergers would receive a comprehensive review.