InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Fed’s Bowman speaks on current trends in banking regulation
On February 27, Michelle Bowman, a member of the Federal Reserve Board of Governors, gave a speech reflecting on the state of the broader U.S. economy and banking regulation in Tampa, Florida. Bowman highlighted the need for the Fed to focus on “efficiency in how we deliver on our safety and soundness goals.” On capital reform, Bowman noted that since the closure of the comment period for the Basel III “Endgame” reforms, the federal banking agencies have been reviewing the feedback and identifying areas of concern: she hopes that the agencies will take this opportunity to revise the proposal in a way that addresses the concerns raised by the public. After voicing her non-support for the recently adopted Community Reinvestment Act (CRA) final rule, Bowman shared that while the new rule provided some positive changes, the changes are still “unnecessarily complex, overly prescriptive,” and have greater costs than benefits. Bowman highlighted that the final rule treats a wide range of community banks with more than $2 billion in assets as “large banks, and would have resulted in a “nearly tenfold increase in banks with a ‘Need to Improve’ CRA rating” if applied to the period from 2018 to 2020. On Regulation II and debit card interchange fees, Bowman noted that the comment period has been extended until May 12, adding that the proposed permanent decrease in debit card interchange fees will have “consequences for banks of all sizes.” Bowman ended with discussion on bank mergers, climate change, and liquidity.
VA issues circular to address loan holder fees on assuming a VA-guaranteed loan
On February 26, the Department of Veterans Affairs published a circular to address assumption fees, specifically permitting a loan holder to charge an additional assumption-related fee based on the location of the relevant property when the assumption of a VA-guaranteed loan closes. This additional fee is in addition to the previously permitted assumption fees which must be less than $300 for loan holders with maximum authority or $250 for loan holders without automatic authority. The VA set the amount of the additional assumption fee allowed in Exhibit A to the circular, which can be found here.
California Attorney General warns small banks and credit unions on fees
On February 22, California State Attorney General, Rob Bonta, issued a letter to small banks and credit unions cautioning that overdraft and returned deposited item fees may infringe upon California’s Unfair Competition Law (UCL) and the CFPA. The letter, directed at institutions in California with assets under $10 billion, highlighted concerns that such fees disproportionately burden low-income and minority consumers. Bonta emphasized that these fees often catch consumers off guard, leading to significant financial strain, and urged the financial institutions in California to comply with state and federal laws by eliminating such practices.
The letter underscores how overdraft and returned deposited item fees can harm consumers, and potentially constitute unfair acts against them. Bonta also pointed out how overdraft fees cannot be reasonably anticipated due to the complexities of transaction processing, making it challenging for consumers to make informed financial decisions. Furthermore, the letter warned that imposition of returned deposited item fees, which are charges by financial institutions when a consumer deposits a check that bounces (due to an issue with the check originator such as insufficient funds or a stop payment order), is likely an unfair business practice in violation of the UCL and CFPA because consumers are usually unable to reasonably avoid the fee.
This action by the California Attorney General is notable for its focus on smaller financial institutions that were expressly excluded from the CFPB’s proposed rule last month on overdraft fees (previously covered by InfoBytes here); however, the action is broadly consistent with the CFPB’s guidance on returned deposited item fees (also covered by InfoBytes here).
Minnesota Attorney General settles with tribal company over high interest rates
On February 21, the Minnesota Attorney General announced a settlement with a tribal economic development entity to resolve a 2023 federal lawsuit that alleged the entity’s lending subsidiaries were engaged in predatory lending and illegal interest rates, in violation of Minnesota and federal consumer lending laws. As previously covered by InfoBytes, the complaint claimed that the entity’s lending subsidiaries charged interest rates of up to 800 percent in violation of state statutory caps of eight percent, and led state residents to believe that the entity was exempt from state laws that protect against predatory lending.
Under the terms of the settlement, the entity and its subsidiaries can no longer lend to Minnesota residents nor advertise or market those loans. The settlement also required any loan issued to consumers in Minnesota before the settlement is canceled, except to recover the original principal balance with all past payments to be attributed towards paying down the principal balance.
District Court decides in favor of bank despite alleged FDCPA and RESPA violations
On February 15, the U.S. District Court for the Central District of California granted a bank defendant’s motion to dismiss certain claims presented in the plaintiff’s complaint alleging violations of the Fair Debt Collection Practices Act (FDCPA) and Real Estate Settlement Practices Act (RESPA).
With respect to the FDCPA claim, the court found that the defendant did not qualify as a “debt collector” within the meaning of the statute because the defendant acquired the loan through its merger with the original creditor of the plaintiff’s mortgage. The court noted that several other district courts have held that an entity that acquires a debt through its merger with another creditor is not a “debt collector” under the FDCPA even if the merger occurred following the borrower’s default on the debt.
With respect to the plaintiff’s RESPA claim, the court found that the plaintiff failed to allege a violation of the statute because the plaintiff’s letter to the defendant, which requested a copy of the original promissory note underlying the deed of trust as well as a loan payoff amount, did not constitute a “qualified written request” triggering the defendant’s obligations under RESPA to respond.
OCC names Ted Dowd as Acting Senior Deputy Comptroller and Chief Counsel
On February 23, the OCC announced that Ted Dowd will serve as the Acting Senior Deputy Comptroller and Chief Counsel for the agency while the OCC searches for a successor to Ben McDonough. Dowd is currently the Deputy Chief Counsel, a position he has fulfilled since 2018 where he oversaw the operations of all OCC district counsel offices. Under the new position, Dowd will oversee all legal aspects of the OCC, as well as support the agency’s activities in bank chartering, supervision, enforcement, and rulemaking, among others. This positional change will go into effect on April 8 when the current OCC Chief Counsel Ben McDonough begins a new position at another agency.
FTC takes action against tax prep company for alleged unfair and deceptive practices
On February 23, the FTC announced an action against a tax preparation company for alleged unfair and deceptive acts and practices related to the sale of tax preparation products and services. The FTC alleged in its redacted administrative complaint that the defendant unfairly pushed consumers into paying for more expensive tax preparation products. The FTC further alleged the company made it unnecessarily difficult to downgrade the consumer’s tax preparation plan, both by requiring the consumer to first speak with a representative and by requiring the consumer to re-input the data if the consumer chooses to downgrade to the lower-priced product. The FTC also stated that the company’s upgrade policy, in contrast, is notably simple compared to its downgrade policy, and consumers’ “data seamlessly moves to the more expensive product instantly.” The FTC also claimed that the company’s “file for free” advertisements are deceptive because not all consumers’ tax situations are eligible for the free service.
This action follows the FTC’s action against another tax preparation software provider last month (covered by InfoBytes here).
FTC alleges a common enterprise’s software misrepresented consumers’ sensitive browsing data
On February 22, the FTC released a complaint and decision against multiple software companies operating as a common enterprise for allegedly violating three counts of Section 5 of the FTC Act for (1) unfairly collecting consumers’ browsing information; (2) deceptively failing to disclose tracking of consumers; and (3) stating false representations on data aggregation and anonymization. From 2014 to 2020, the FTC alleged that the companies distributed software with several privacy claims including that the software would block cookies and prevent browser tracking without obtaining consumers’ consent and deceiving consumers about the true nature of their actions.
The FTC alleged the companies collected browser information through browser extensions and antivirus software. While the companies claimed that these extensions provided security and privacy services, the companies used the extensions to collect browser information from users including URLs of visited webpages, URLs of background resources (e.g., cookies or images pulled from other domains), consumers’ search queries, and cookie values. While the companies made claims about the privacy and security of their products, they failed to disclose to consumers that their browsing information was sold to third parties and misrepresented how the data was shared. This browsing information can comprise sensitive data, possibly revealing a consumer’s religious beliefs, health information, political ideology, location, finances, and “interests in prurient content.” The FTC noted that when the companies in 2019 asked software users to opt-in to collect browser information, less than 50% of consumers agreed.
Under the FTC’s Decision, the companies must pay $16.5 million in monetary relief. Additionally, the FTC enjoined the companies from licensing or selling any browsing data from branded products to third parties for advertising purposes, and the companies are required to (a) obtain consent from consumers before selling consumers’ browsing data from non-branded products for advertising; (b) delete consumer web browsing information and certain products or algorithms derived from that data; (c) notify consumers whose information was previously sold without their consent; and (d) implement a privacy program.
CFPB claims special, risk-based oversight over lender
On February 23, the CFPB released a supervisory designation over a nonbank, small-loan consumer finance company (the Company). This is the first time the CFPB has used its authority under Section 1024(a)(1)(C) of the Consumer Financial Protection Act (CFPA) to designate a company for supervision based on a determination that the company’s conduct poses “risk to consumers” after a contested proceeding. This provision of the CFPA only required the CFPB to have “reasonable cause to determine” that a covered person’s conduct posed risks to consumers––which the CFPB stated is a “less demanding” legal standard than the preponderance-of-the-evidence standard generally used in civil proceedings.
The CFPB described the relevant statutory framework of the proceeding with particularity since this proceeding was “one of the first” under Section 1024(a)(1)(C). The CFPB found the company to be a covered person and stated that the CFPB had reasonable cause to determine that the Company’s conduct poses risks to consumers, including its alleged bundling of loans with insurance coverage, harmful collection practices, inaccurate credit reporting, and serial refinancing. The CFPB alleged that consumer complaints are sufficient to establish reasonable cause that the Company’s actions put consumers at risk.
FCC’s Rosenworcel relaunches Consumer Advisory Committee; focuses on AI consumer issues
On February 20, the Chairwoman of the FCC, Jessica Rosenworcel, announced that the FCC will relaunch the Consumer Advisory Committee (CAC). The CAC will focus on how emerging artificial intelligence (AI) technologies implicate consumers’ privacies and protections, such as how the FCC can better protect consumers against “unwanted and illegal” calls, among other things. The CAC is a committee with 28 members comprising companies, non-profit entities, trade organizations, and individuals; a full list of members is found here. The first meeting is on April 4, at 10:30 a.m., Eastern Time, and will be open to the public via a live broadcast.