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District court dismisses FDCPA class action for lack of standing
Recently, the U.S. District Court for the District of New Jersey granted defendant debt collectors’ motion to dismiss a FDCPA class action without prejudice. In 2016, the defendants obtained the plaintiff’s credit card debt and then settled that debt with plaintiff for approximately half of the original amount owed. Thereafter, plaintiff initiated a putative class action alleging defendants made false and misleading representations in the collection letter because they did not specify if the total amount owed included interest, costs, or fees. To establish Article III standing, the Court stated that plaintiff must “allege some form of detrimental reliance on the representations made by a defendant in a collection letter.” The Court found that the plaintiff ultimately failed to demonstrate that the alleged missing interest information in defendants' collection letter was detrimental, and that “informational statements in the [c]ollection [l]etter are not an actual injury unless [p]laintiff acted on them.” Accordingly, the Court concluded that the plaintiff failed to allege any adverse effects of the misleading information, and as a result, failed to establish standing.
6th Circuit affirms district court’s decision to discard case for lack of standing
On May 17, the U.S. Court of Appeals for the Sixth Circuit affirmed a lower court’s sua sponte dismissal for lack of subject-matter jurisdiction. This case was brought by two nonprofit organizations seeking to halt the Department of Education’s (DOE) plan to provide participants in the Public Service Loan Forgiveness (PSLF) program with a one-time account adjustment that would allow time spent in excessive forbearance status to count toward debt forgiveness under the program, as announced in April 2022 and July 2023. Plaintiffs alleged standing on the basis that they “have previously employed, and currently employ, borrowers who participate, may become eligible to participate, or have previously participated in the statutory PSLF program” and “expect to recruit other such employees in the future.” Notably, and not long after filing their complaint in the lower court, plaintiffs filed an ex parte motion for a temporary restraining order and preliminary injunction, seeking to prevent the Department of Education from discharging any debt through the long-term forbearance aspect of the adjustment. Before defendants could respond, however, the U.S. District Court for the Eastern District of Michigan dismissed plaintiffs’ complaint sua sponte without prejudice.
On appeal, plaintiffs argued that they were not required to link the proposed adjustment to a specific tangible loss and that the adjustment injured them by reducing their expected benefits under a loan forgiveness program. The Sixth Circuit disagreed. It found plaintiffs failed to allege standing due to an injury resulting “from the [student loan] adjustment based on competitor standing and deprivation of a procedural right” and affirmed the dismissal for lack of subject-matter jurisdiction.
FDIC Chairman Gruenberg to step down
On May 20, Martin J. Gruenberg, Chairman of the FDIC, announced his intention to step down as Chairman of the FDIC – once a successor will be confirmed. Having served at the helm of the FDIC since August 2005, as Chairman, Vice Chairman, and Director, Gruenberg expressed pride in upholding the FDIC's mission to preserve public trust and ensure stability in the banking system. He pledged to continue his duties until a new chairman was appointed, with a focus on transforming the FDIC’s workplace culture.
Congressional Democrats pen letter to financial regulators on “de-risking” and inclusion
On May 15, 11 Congressional Democrats sent a letter to Treasury Secretary Yellen, now-former FDIC Chairman Gruenberg, Acting Comptroller Hsu, Fed Chair Powell, FinCEN Director Gacki, NCUA Chair Harper, and CFPB Director Chopra asking for robust, modernized anti-money laundering (AML) and financial crimes compliance to support equitable banking access for Muslim Americans and immigrant communities. The congressmembers raised these concerns as banks increasingly engaged in the practice of “de-risking,” which involved indiscriminately terminating or restricting business relationships with broad categories of customers rather than managing risk consistent with risk-based supervisory or regulatory requirements. The letter highlighted that customers in the Muslim American, Middle Eastern, and South Asian American communities “may” be considered “high-risk” erroneously for sending payments or remittances abroad, or by donating to charities or religious institutions. The letter asserts that this practice can also harm economic stability and sustainability in countries that depend on remittances for development.
The Democrats proposed several changes to address these concerns. First, the letter asked financial regulators to issue a joint statement affirming financial inclusion as a priority. Second, it requested a formal advisory group on financial inclusion. Third, the letter requested FinCEN issue FAQs to help financial institutions “avoid shutting down or restricting accounts unnecessarily.” Fourth, the letter asked the Treasury to amend its annual examiner training to include a discussion on financial inclusion. Fifth, it asked for the promulgation of guidance for banks to provide pre-clearance mechanisms for consumers likely to raise AML flags. Finally, the letter requested that the CFPB establish notice and dispute resolution requirements for consumers who “experience account closures especially when a SAR is not filed.”
CFPB orders debt relief servicer to pay $400,000 for charging advanced fees
On May 20, the CFPB released its consent order and stipulation against a debt relief provider for alleged deceptive acts and practices in violation of the CFPA and for alleged deceptive telemarketing practices and collection of advance fees in violation of the Telemarketing Sales Rule (TSR). The CFPB alleged the violations began in January 2016 and ordered a civil money penalty of $400,000. Specifically, the CFPB found the company harmed 5,970 consumers with student loans in the amount of a total of $974,590 in at least three ways: (1) by charging advance fees of $99 to $199 for debt relief services in violation of the TSR, regardless of success in loan relief; (2) by misrepresenting that the fees would be applied to student loans when they were not often used to pay off the student loans; and (3) by misleading consumers that would consolidate student loans, lower monthly payments, and achieve loan forgiveness – especially when the company did not fulfill any of these claims in many instances.
The Bureau nullified all agreements relating to the company’s debt relief services between a consumer and the debt relief company. The Bureau also ordered the company to cease fee collections or attempts and permanently restrained the company from advertising or marketing its debt relief services or receiving any consideration from holding an ownership interest in, providing services to, or working in any capacity for any person engaged in or assisting others in the advertising, marketing, promoting, offering for sale, or selling debt relief services. If the company failed to disclose any material asset or if any sworn statements contain any material representation or omission, the Bureau will require an additional $5 million fine. The company neither admitted nor denied these findings.
Basel Committee reiterates full and fast position on implementation
On May 13, the Basel Committee released a press release which reiterated its expectation to implement all aspects of the Basel framework, such as the Basel III “Endgame” proposal, in “full, consistently and as soon as possible.” The Basel III reforms were announced by the Basel Committee in 2017 and included liquidity requirements which brought much debate among U.S. legislators. The Committee’s statement contrasts some outstanding questions on the U.S.’s decision to implement the banking reforms. For instance, Congressional democrats penned a letter in February urging U.S. banking regulators to codify the final rule changes (covered by InfoBytes here), yet the House Financial Committee’s Chairman, Patrick McHenry (R-NC), urged banking regulators in March to reconsider the Basel Committee’s proposal (covered by InfoBytes here).
Bowman remarks on fine tuning supervisory and regulatory efforts
On May 17, Fed Governor Michelle Bowman delivered a speech to the Pennsylvania Bankers Association focusing on bank regulatory reform, opportunities for engagement, bank mergers and acquisitions, third party risk management, regulations under the EGRPRA, and prioritization within bank regulation and supervision.
Bowman highlighted the need for bank examiners and managers to concentrate on central banking concerns such as credit, interest rate, and liquidity risks, since she opined “[t]he current period of regulatory reform feels more contentious than in the past.” Bowman suggested bank stakeholders engaged in feedback regarding newer reform efforts, highlighting difficulties with keeping up with requirement changes, and the need to inform policymakers.
Bowman stated reservations on proposals to change how banking agencies assess bank merger requests. She countered the notion that agencies give automatic approval to mergers, pointing out the extensive time and effort required by banks during the application process. Bowman conceded that there was room for improvement in achieving timely regulatory actions while still ensuring a thorough examination of applications.
Bowman also commented on the importance of public comment in the Fed’s review of its regulations to identify outdated, unnecessary, or overly burdensome regulations in accordance with the EGRPRA. She also acknowledged the significance of climate risk but noted it did not pose a fundamental threat to the stability of financial institutions.
CFPB issues interpretive rule likening BNPL accounts to credit cards subject to Regulation Z
On May 22, the CFPB issued an interpretive rule stating its position that certain consumer protection provisions of Regulation Z applied to Buy Now, Pay Later (BNPL) accounts. The interpretive rule asserted that “digital user accounts” used to access BNPL credit are considered “credit cards” under Regulation Z.
According to the CFPB, BNPL “digital user accounts” fell within TILA and Regulation Z’s definition of a credit card because they qualified as an “other credit device” or “other single credit device.” The CFPB likened its interpretation of “credit device” to the Fed’s interpretation of “access device” in Regulation E, which included non-physical payment codes to initiate an electronic fund transfer. Further, the CFPB stated that because BNPL “digital user accounts” were usable “from time to time to obtain credit,” they met the definition of a “credit card” under Regulation Z.
As a result, the CFPB’s interpretive rule stated that entities issuing such accounts were “card issuers” and therefore “creditors” who are “broadly subject” to the regulations in Subpart B of Regulation Z. The interpretive rule noted that although Subpart B was entitled “Open-End Credit,” it nevertheless applied to closed-end BNPL credit issued through a digital user account if such credit was not subject to a finance charge and was not payable by written agreement in more than four installments. Subpart B included provisions applicable to, among other things, disclosures, consumer disputes, billing errors, and refunds.
The CFPB will request public feedback on the interpretive rule but will reserve the right to move forward without revisions if they are not warranted. The CFPB will submit a report with the interpretive rule to the Senate, the U.S. House, and the U.S. Comptroller General (head of the GAO) prior to the rule’s published effective date.
CFPB sues online lending platform for alleged CFPA, FCRA violations
On May 17, the CFPB announced a lawsuit against an online lending platform through which consumers could obtain small-dollar, short-term loans through a brokering arrangement with lenders. The CFPB alleged the platform violated the CFPA through its deceptive advertisements to consumers on the platform’s alleged promotion of financing terms which included “no interest,” “0% APR,” or “0% interest” but instead invited consumers to provide “tips” and “donations” to lenders, which, would increase the likelihood of a loan being funded. The CFPB further alleged that while the platform marketed zero-interest loans, the platform did not provide users an option for a $0 donation fee or to skip the fee altogether. The Bureau claimed, “almost all of [the platform’s] loans carry an equivalent annual percentage rate of over 36% APR, and many loans carry an APR in excess of 300%, with some over 1,000%.” The Bureau also claimed the platform violated the CFPA by providing misleading TILA disclosures that did not contain the cost of the additional fees and tips in the quoted total payments.
The complaint alleged further violations of the CFPA where the platform (i) obscured whether and how borrowers can select the option for no donation or tip; (ii) stated or implied through its practices that consumers were obligated to repay loan amounts although the loans violated the applicable states’ lender-licensing or usury laws that declared such loans void ab initio or limited consumers’ obligation to repay; (iii) requested to collect and collects on void loans consumers were not obligated to repay for the aforementioned reason; (iv) misleadingly implied that it will furnish negative information to the credit bureaus unless the consumer makes a payment, without actually intending to do so; and (v) violated the FCRA.
The CFPB’s complaint stated that because the platform was a consumer reporting agency under the FCRA and therefore would be required to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” The CFPB will seek, among other things, injunctions against the platform to prevent future violations, monetary relief for borrowers, forfeiture of ill-gotten gains, and a civil money penalty.
Senators release roadmap for federal AI policy
On May 15, the Bipartisan Senate AI Working Group – comprising Senate Majority Leader Charles Schumer (D-NY), Sen. Mike Rounds (R-SD), Sen. Martin Heinrich (D-NM) and Sen. Todd Young (R-IN) – released the Bipartisan Roadmap For Artificial Intelligence Policy. The roadmap included their findings and outlined key policy priorities for bipartisan consideration in the 118th Congress and beyond. Understanding that artificial intelligence (AI) and related technologies would not fall into the jurisdiction of a single committee, and recognizing the need to manage AI's benefits and risks actively, the working group hosted nine AI Insight Forums to increase the Senate’s knowledge of AI-related policies. The Working Group hoped Senate committees would continue to seek outside input from a variety of stakeholders and experts to inform their decision making. The Working Group also encouraged the executive branch to share with Congress “updates on administration activities related to AI, including any AI-related [MOUs] with other countries and the results from any AI-related studies to better inform the legislative process.”
Key policy areas of the Senate’s AI roadmap included:
- Developing a comprehensive federal data privacy framework.
- Addressing potential long-term risks associated with AI.
- Boosting AI innovation funding to secure U.S. leadership and global competitiveness.
- Enforcing AI-related laws, addressing potential biases, and enhancing AI transparency and “explainability.”
- Preparing the workforce for AI-induced changes, including job displacement and retraining.
- Strengthening national security through adopting AI technology and managing related threats.
- Addressing the issue of deepfakes in elections and protecting content creators and journalists.
- Promoting competition in AI among higher education and businesses, supported by federal funding for the National AI Research Resource.