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CFPB sues credit reporter and one of its executives
On April 12, the CFPB sued a credit reporting agency (CRA), two of its subsidiaries (collectively, “corporate defendants"), and a former senior executive for allegedly violating a 2017 enforcement order in connection with alleged deceptive practices related to their marketing and sale of credit scores, credit reports, and credit-monitoring products to consumers. The 2017 consent order required the corporate defendants to pay a $3 million civil penalty and more than $13.9 million in restitution to affected consumers as well as abide by certain conduct provisions (covered by InfoBytes here). The Bureau’s announcement called the corporate defendants “repeat offender[s]” who continued to engage in “digital dark patterns” that caused consumers seeking free credit scores to unknowingly sign up for a credit monitoring service with recurring monthly charges. According to the Bureau’s complaint, the corporate defendants, under the individual defendant’s direction, allegedly violated the 2017 consent order from the day it went into effect instead of implementing agreed-upon policy changes intended to stop consumers from unknowingly signing up for credit monitoring services that charge monthly payments. The Bureau claimed that the corporate defendants’ practices continued even after examiners raised concerns several times. With respect to the individual defendant, the Bureau contended that he had both the “authority and obligation” to ensure compliance with the 2017 consent order but did not do so. Instead, he allowed the corporate defendants to “defy the law and continue engaging in misleading marketing, even in the face of thousands of consumer complaints and refund requests.” The complaint alleges violations of the CFPA, EFTA/ Regulation E, and the FCRA/Regulation V, and seeks a permanent injunction, damages, civil penalties, consumer refunds, restitution, disgorgement and the CFPB’s costs.
CFPB Director Rohit Chopra issued a statement the same day warning the Bureau will continue to bring cases against repeat offenders. Dedicated units within the Bureau’s enforcement and supervision teams will focus on repeat offenders, Chopra stated, adding that the Bureau will also work with other federal and state law enforcement agencies when repeat violations occur. “Agency and court orders are not suggestions, and we are taking steps to ensure that firms under our jurisdiction do not engage in repeat offenses,” Chopra stressed. He also explained that the charges against the individual defendant are appropriate, as he allegedly, among other things, impeded measures to prevent unintended subscription enrollments and failed to comply with the 2017 consent order, which bound company executives and board members to its terms.
The CRA issued a press release following the announcement, stating that it considers the Bureau’s claims to be “meritless” and that as required by the consent order, the CRA “submitted to the CFPB for approval a plan detailing how it would comply with the order. The CFPB ignored the compliance plan, despite being obligated to respond and trigger deadlines for implementation. In the absence of any sort of guidance from the CFPB, [the CRA] took affirmative actions to implement the consent order.” Moreover, the CRA noted that “[r]ather than providing any supervisory guidance on this matter and advising [the CRA] of its concerns – like a responsible regulator would – the CFPB stayed silent and saved their claims for inclusion in a lawsuit, including naming a former executive in the complaint,” and that “CFPB’s current leadership refused to meet with us and were determined to litigate and seek headlines through press releases and tweets.”
Kentucky enacts student loan servicer licensing provisions
On April 7, the Kentucky governor signed HB 494 to establish the Student Education Loan Servicing, Licensing, and Protection Act of 2022. The act outlines licensing provisions for student loan servicers and implements consumer protections for borrowers. Among other things, the act requires, subject to certain exemptions, persons servicing student loans in the state to obtain a license from the commissioner. Under the act, the commissioner may require that the application and any supporting documentation be submitted to other agencies or authorities as part of a nationwide licensing system, “which may act as an agent for receiving, requesting, and distributing information to and from any source directed by the commissioner.” The commissioner may also conduct examinations and investigations, deny, suspend, or revoke a license, and enter an emergency order to suspend, limit, or restrict a license without notice or hearing if an investigation reveals that a “licensee has engaged, or is about to engage, in unsafe, unsound, or illegal practices that pose and imminent threat or harm to the public interest.” Additionally, the commissioner may impose civil penalties of up to $25,000 per violation for violations of the act’s provisions, and may order restitution, refunds, or expenses as deemed necessary. The act also prohibits student loan servicers from engaging in unfair, deceptive, predatory practices, or omitting material information connected with the servicing of a student education loan. Additional provisions related to licensing renewals and reinstatements, assessment fees, and reporting and net worth requirements are also provided. The act takes effect 90 days after the official adjournment of the session.
Virginia enacts qualified education loan servicer legislation
On April 11, the Virginia governor signed SB 496, which amends provisions related to financial institutions and qualified education loan servicers. The bill, among other things provides that a “qualified education loan servicer” is an individual that meets all of the following criteria: (i) “receives any scheduled periodic payments from a qualified education loan borrower or notification of such payments or applies payments to the qualified education loan borrower's account pursuant to the terms of the qualified education loan or the contract governing the servicing”; (ii) “during a period when no payment is required on a qualified education loan, maintains account records for the qualified education loan and communicates with the qualified education loan borrower regarding the qualified education loan, on behalf of the qualified education loan's holder”; and (iii) “interacts with a qualified education loan borrower, which includes conducting activities to help prevent default on obligations arising from qualified education loans or to facilitate certain activities.” The bill is effective July 1.
Kentucky enacts mortgage loan industry regulation bill
On April 8, the Kentucky governor signed HB 643, which relates to regulating mortgage lenders. Among other things, the bill: (i) permits employees of a licensee to engage in the mortgage lending process from an alternate location if certain conditions are met; (ii) requires supervision and control of employees acting as mortgage loan originators; (iii) establishes requirements for licensees that allow employees to engage in the mortgage lending process from alternate work locations; (iv) prohibits records from being maintained at an alternate work location; and (v) permits mortgage loan companies and mortgage loan brokers to utilize third-party secure storage facilities if certain conditions are met.
Kansas amends mortgage licensing provisions
On April 7, the Kansas governor signed HB 2568, which updates the Kansas Mortgage Business Act by amending certain mortgage licensing provisions. Among other things, the bill: (i) authorizes certain mortgage business to be conducted at remote locations; (ii) establishes procedures and requirements for license and registration renewal or reinstatement; (iii) adjusts surety bond requirements; (iv) provides for evidence of solvency and net worth; and (v) requires notice to the Commissioner when adding or closing any branch office. Additionally, the bill replaces the current requirements for licenses and renewal applications and also sets the expiration date for licenses and registration on December 31 of each year. A license or registration will be renewed without assessment of a late fee by filing a complete renewal application and nonrefundable renewal fee with the Commissioner by December 1 of each year. The bill is effective July 1.
OFAC sanctions actors throughout the Western Balkans
On April 11, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order (E.O.) 14033 against seven individuals and one entity across four countries in the Western Balkans, which “is the second action OFAC has taken under E.O. 14033 targeting persons who threaten the stability of the region through corruption, criminal activity, and other destabilizing behavior.” OFAC also noted that the Department of State is designating individuals from North Macedonia and Bosnia and Herzegovina under Section 7031(c) of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2022, instituting what is commonly known as a visa ban. As a result of the sanctions, all assets belonging to the designated persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. U.S. persons are generally prohibited from engaging in dealings involving any property or interests in property of the blocked or designated persons.
OFAC sanctions Ireland-based criminal organization and members
On April 11, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13581 against an Ireland-based crime group, which OFAC considers “a murderous organization involved in the international trafficking of drugs and firearms,” seven of its key members, and three companies controlled or owned by key members of the organization. According to OFAC, the sanctions were the result of a collaborated effort between OFAC, the Drug Enforcement Administration, the U.S. Department of State, U.S. Customs and Border Protection, Ireland’s national police force (An Garda Síochána), the United Kingdom’s National Crime Agency, and the European Union Agency for Law Enforcement Cooperation. As a result of the sanctions, all assets belonging to the designated persons that are in the U.S. or in the possession or control of U.S. persons must be blocked and reported to OFAC. U.S. persons are generally prohibited from engaging in dealings involving any property or interests in property of the blocked or designated persons.
10th Circuit: Extended overdraft fees do not qualify as interest under the NBA
On April 8, the U.S. Court of Appeals for the Tenth Circuit concluded that extended overdraft fees do not legally qualify as interest under the National Bank Act (NBA). According to the opinion, after the plaintiff overdrew funds from his checking account, the bank covered the cost of the item and charged an initial overdraft fee. The bank later began imposing an extended overdraft fee each business day following the initial overdraft, ultimately assessing 36 separate overdraft fees. The plaintiff filed a putative class action, contending that the bank’s extended overdraft fees qualify as interest under the NBA, and that the amount charged (which he claimed translated to an effective annualized interest rate between 501 and 2,462 percent) violated the NBA’s anti-usury provisions because it exceeded Oklahoma’s maximum annualized interest rate of 6 percent. While the plaintiff recognized that the initial overdraft fee qualifies as a “deposit account service,” he argued that the extended overdraft fee “‘is an interest charge levied by [the bank] for the continued extension of credit made in covering a customer’s overdraft’ and therefore cannot be considered connected to the same banking services that [the bank] provides to its depositors.” The district court disagreed and dismissed the action for failure to state a claim after determining that the bank’s extended overdraft fees were fees for “deposit account services” and were not “interest” under the NBA.
In affirming the district court’s dismissal, the appellate majority (an issue of first impression in the 10th Circuit) agreed that the fees qualify as non-interest account fees rather than interest charges under the NBA. The majority deferred to the OCC’s 2007 Interpretive Letter, which addressed the legality of a similar overdraft program fee structure. The letter “represents OCC’s reasonable interpretation of genuinely ambiguous regulations, and OCC’s determination that fees like [the bank’s] extended overdraft fees are ‘non-interest charges’ is neither plainly erroneous nor inconsistent with the regulations it interprets,” the majority wrote. “As ‘non-interest charges’ under § 7.4002, [the bank’s] extended overdraft fees are not subject to the NBA’s usury limits, and [plaintiff] fails to state a claim,” the majority added.
The dissenting judge countered that extended overdraft fees are interest, and that the OCC’s interpretation did not deserve deference because these fees “unambiguously” meet the definition of interest under 12 C.F.R. § 7.4001(a). According to the dissenting judge, this regulation provides that “‘interest’ ... includes any payment compensating a creditor ... for an extension of credit,” and that as such, the “definition maps onto extended overdraft fees like [the bank’s]” and thus the plaintiff had stated a claim.
OCC says bank partnerships crucial in community reinvestment and resilience
On April 7, the OCC highlighted measures that banks can take to collaborate with community development financial institutions (CDFIs), minority depository institutions (MDIs), and other community-based groups to assist communities recovering from the Covid-19 pandemic and natural disasters. In the agency’s latest edition of its Community Developments Investments newsletter, “Partners in Recovery: Community Reinvestment and Resilience,” the OCC discussed ways banks have partnered with CDFIs and MDIs to originate small business loans, and highlighted federal emergency programs created to provide resources to low- and moderate-income and minority communities and businesses recovering from the disproportionate effects of the pandemic. The newsletter also provided examples of bank-community partnerships and addressed the role that these partnerships play in both rebuilding communities following disasters and the pandemic and preparing for future crises through climate resilience planning and investment.
Biden orders agency action on medical debt
On April 11, the Biden administration released a Fact Sheet regarding an initiative to decrease “malicious” and “predatory” billing and collection practices related to medical debts, including holding medical providers and debt collectors “accountable for harmful practices.” According to the Fact Sheet, the administration has ordered several agencies to take actions intended to “lessen the burden of medical debt and increase consumer protection.” The Fact Sheet provides “guidance to all agencies to eliminate medical debt as a factor for underwriting in credit programs,” and states, among other things, that the: (i) FHFA is reviewing the credit models that Fannie Mae and Freddie Mac use; (ii) USDA is discontinuing “the inclusion of any recurring medical debts into borrower repayment calculations”; and (iii) VA is reviewing its underwriting guidelines to ensure it minimizes or eliminates medical debt reporting as a proxy for creditworthiness. Additionally, the Fact Sheet noted that the Department of Health and Human Services is requesting data from over 2,000 providers on medical bill collection practices, lawsuits against patients, financial assistance, financial product offerings, and third party contracting or debt buying practices. The Fact Sheet also noted that the CFPB “will investigate credit reporting companies and debt collectors” in regard to “patients’ and families’ rights,” which includes targeting “coercive credit reporting” and determining whether medical debts should be included in consumer credit reports.