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Financial Services Law Insights and Observations


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  • CFPB issues fall supervisory highlights

    Federal Issues

    On November 15, the CFPB released its fall 2022 Supervisory Highlights, which summarizes its supervisory and enforcement actions between January and June 2022 in the areas of auto servicing, consumer reporting, credit card account management, debt collection, deposits, mortgage origination, mortgage servicing, and payday lending. Highlights of the findings include:

    • Auto Servicing. Bureau examiners identified instances of servicers engaging in unfair, deceptive, or abusive acts or practices connected to add-on product charges, loan modifications, double billing, use of devices that interfered with driving, collection tactics, and payment allocation. For instance, examiners identified occurrences where consumers paid off their loans early, but servicers failed to ensure consumers received refunds for unearned fees related to add-on products.
    • Consumer Reporting. The Bureau found deficiencies in credit reporting companies’ (CRCs) compliance with FCRA dispute investigation requirements and furnishers’ compliance with FCRA and Regulation V accuracy and dispute investigation requirements. Examples include: (i) NCRCs that failed to report the outcome of complaint reviews to the Bureau; (ii) furnishers that failed to send updated information to CRCs following a determination that the information reported was not complete or accurate; and (iii) furnishers’ policies and procedures that contained deficiencies related to the accuracy and integrity of furnished information.
    • Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) conduct reasonable investigations into billing error notices due to human errors and system weaknesses; and (iii) provide explanations to consumers after determining that no billing error occurred or that a different billing error occurred from that asserted. Examiners also identified Regulation Z violations where credit card issuers improperly mixed original factors and acquisition factors when reevaluating accounts subject to a rate increase, and identified deceptive acts or practices related to credit card issuers’ advertising practices.
    • Debt Collection. The Bureau found instances of FDCPA violations where debt collectors engaged in conduct that harassed, oppressed, or abused the person with whom they were communicating. The report findings also discussed instances where debt collectors communicated with a person other than the consumer about the consumer’s debt when the person had a name similar or identical to the consumer, in violation of the FDCPA.
    • Deposits. The Bureau discussed how it conducted prioritized assessments to evaluate how financial institutions handled pandemic relief benefits deposited into consumer accounts. Examiners identified unfairness risks at multiple institutions due to policies and procedures that may have resulted in, among other things, (i) garnishing protected economic impact payments funds in violation of the Consolidated Appropriations Act of 2021; or (ii) failing to apply the appropriate state exemptions to certain consumers’ deposit accounts after receiving garnishment notice.
    • Mortgage Origination. Bureau examiners identified Regulation Z violations and deceptive acts or practices prohibited by the CFPA. An example of this is when the settlement service had been performed and the loan originator knew the actual costs of those service, but entered a cost that was completely unrelated to the actual charges that the loan originator knew had been incurred, resulting in information being entered that was not consistent with the best information reasonably available. The Bureau also found that the waiver language in some loan security agreements was misleading, and that a reasonable consumer could understand the provision to waive their right to bring a class action on any claim in federal court.
    • Mortgage Servicing. Bureau examiners identified instances where servicers engaged in abusive acts or practices by charging sizable fees for phone payments when consumers were unaware of those fees. Examiners also identified unfair acts or practices and Regulation X policy and procedure violations regarding failure to provide consumers with CARES Act forbearances.
    • Payday Lending. Examiners found lenders failed to maintain records of call recordings necessary to demonstrate full compliance with conduct provisions in consent orders generally prohibiting certain misrepresentations.

    Federal Issues CFPB Supervision Examination UDAAP Auto Lending CFPA Consumer Finance Consumer Reporting Credit Report FCRA Regulation V Credit Furnishing Credit Cards Regulation Z Debt Collection FDCPA Mortgages Deposits Prepaid Accounts Covid-19 CARES Act

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  • CFPB provides update on student loan borrowers

    Federal Issues

    On November 2, the CFPB’s Office of Research released an update showing that student loan borrowers are increasingly likely to struggle to make monthly payments when federal Covid-19 payment suspensions end in January 2023. The findings follow a report issued in April discussing the credit health of student loan borrowers during the pandemic (covered by InfoBytes here). According to the April report, researchers found that borrowers most at risk when payment suspension ends include those who are 30 to 49 years of age and who live in low-income, high-minority census tracts. However, the Bureau pointed out that since the report was released, inflation has risen and delinquencies and balances have increased for consumers across credit products—both of which may contribute to potential payment challenges for borrowers. The Bureau also noted that during this time, payment suspensions were extended through the end of 2022, and President Biden announced a student debt cancellation plan to reduce payment burdens for many borrowers and completely eliminate loans for others (covered by InfoBytes here).

    The Bureau’s recent findings examined data from its Consumer Credit Panel (a deidentified sample of credit records from one of the nationwide consumer reporting agencies) on consumers who are expected to resume scheduled loan payments at the end of the suspension. Findings show, among other things, that (i) an increasing number of borrowers are 60 days or more past due on a non-student-loan credit account since mid-2021; (ii) monthly payments across credit products aside from student loans have increased; and (iii) since the April report, delinquencies on non-student-loan products have risen further, with an overall increase in the number of borrowers (5.1 million to 5.5 million) who meet two or more potential risk factors that indicate a borrower may struggle when the payment suspensions end. These risk factors are: “pre-pandemic delinquencies on student loans, pre-pandemic payment assistance on student loans, multiple student loan servicers, delinquencies on other credit products since the start of the pandemic, and new non-medical collections during the pandemic.” The Bureau noted, however, that as many as one-third of borrowers with two or more risk factors may have their balances completely canceled under the student debt cancellation plan, so “despite worsening credit outcomes overall, the cancellation of some student loan debt means that fewer student loan borrowers are likely to be at risk of payment difficulties when federal student loan payments resume in January 2023 than they otherwise would be.”

    Federal Issues CFPB Student Lending Consumer Finance Covid-19

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  • CFPB releases education ombudsman’s annual report

    Federal Issues

    On October 20, the CFPB Education Loan Ombudsman published its annual report on consumer complaints submitted between September 1, 2021 and August 31, 2022. The report is based on approximately 8,410 complaints received by the Bureau regarding federal and private student loans—a 59 percent increase from the previous reporting period. Of these complaints, roughly 2,000 were related to debt collection, while approximately 900 mentioned Covid-19 (the categories increased by 122 and 23 percent, respectively). The report discussed certain risks raised in the consumer complaints, including difficulty pursuing claims and defenses against predatory institutions of higher learning, improper collection attempts on non-qualified private student loans that have been discharged in bankruptcy, and processing errors and servicer misrepresentations that have caused federal student loan borrowers to not be able to take full advantage of pandemic-related relief.

    The report advised policymakers to consider several recommendations, including: (i) examining whether holders of private student loans originated to fund predatory for-profit schools are abiding by state and federal law; (ii) ensuring holders and servicers of private loans are not collecting on non-qualified discharged debt; and (iii) examining whether servicers may be creating barriers to pandemic-related relief. The Bureau also advised policymakers to consider whether to make loan forgiveness programs “opt out” rather than “opt in,” and whether simplifying consumer-facing incentives for consolidating commercial Federal Family Education Loan Program into Direct Consolidation Loans could benefit borrowers if made permanent.

    Federal Issues CFPB Student Lending Consumer Finance Student Loan Servicer Debt Collection Covid-19

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  • FTC reports on actions to protect seniors

    Federal Issues

    On October 18, the FTC issued a report titled Protecting Older Consumers, 2021-2022, A Report of the Federal Trade Commission on measures taken to protect older adults from scams. Using data from the FTC’s Consumer Sentinel Network, which is a secure online database that provides law enforcement agencies with access to reports from consumers about fraud and other consumer problems, the report generally found that older adults reported significantly higher losses to investment, business impersonation, and government impersonation scams in 2021 as compared to 2020. Among other things, the report noted that: (i) the FTC sent thirty-one cease and desist demand letters regarding potentially false or deceptive advertising or marketing actions related to the Covid-19 pandemic; (ii) FTC enforcement actions have resulted in relief of more than $462 million to consumers of all ages in the last fiscal year; and (iii) scams where older adults were contacted on social media are increasing. In addition to describing three rulemakings that focused on key actions that the FTC has taken to protect older consumers, the report mentioned enforcement actions impacting older consumers. The report also provided details about the FTC’s outreach and education efforts through such programs as the Pass it On campaign, which focuses on providing fraud prevention resources to older adults so they can help protect their communities by sharing information and materials with family and friends.

    Federal Issues FTC Elder Financial Exploitation Covid-19 Consumer Finance

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  • House subcommittee asks CFPB to review CRAs' handling of consumer disputes

    Federal Issues

    On October 13, Chairman of the Select Subcommittee on the Coronavirus Crisis James E. Clyburn sent a letter to CFPB Director Rohit Chopra addressing reports that nationwide consumer reporting agencies (CRAs) were less responsive to consumer complaints and disputes related to credit report errors during the Covid-19 pandemic. According to Clyburn, investigative reports allegedly revealed that the CRAs, which are legally obligated to address errors contained in consumer credit reports, did not always investigate these disputes and purportedly used “broad and speculative criteria” to determine whether a dispute was submitted by an unauthorized third party. The letter also expressed concerns that the CRAs’ alleged “overreliance on data furnishers” raises questions about the sufficiency of the CRAs’ dispute investigations, and that, moreover, using different levels of automation to resolve disputes and complaints is creating variability in the quality and thoroughness of their investigations. Clyburn expressed concerns that by failing to investigate certain legitimate disputes, identify and correct erroneous information, or provide the Bureau with information on the outcomes of the complaint investigations, the CRAs may be failing to meet their obligations under the FCRA. He asked Chopra to review the CRAs for possible statutory violations and to “consider investigating whether the CRAs have made sufficient revisions to their procedures for identifying and taking corrective action against unreliable furnishers.”

    Federal Issues U.S. House CFPB Consumer Reporting Agency Consumer Finance Dispute Resolution Credit Report Covid-19 FCRA

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  • VA clarifies Covid-19 forbearance timeline

    Federal Issues

    On September 19, the Department of Veterans Affairs issued a change to Circular 26-21-20 extending the rescission date to align with the end of Covid-19 pandemic, including conforming changes to VA’s expectation as to the completion of a forbearance period. As previously covered by InfoBytes, the VA issued Circular 26-21-20 in September 2021 to clarify timeline expectations for forbearance requests submitted by affected borrowers. The September 2021 Circular stated thar “[f]or borrowers who have not received a COVID-related forbearance as of the date of this Circular, servicers should approve requests from such borrowers provided that the borrower makes the request during the National Emergency Concerning the Novel Coronavirus Disease 2019 (COVID-19) Pandemic,” and that all Covid-19 related forbearances would end by September 30, 2022. However, Change 1 stated that “September 30, 2022” should be replaced with “six months after the end of the National Emergency Concerning the Novel COVID-19 Pandemic.” The circular is rescinded March 1, 2023.

    Federal Issues Department of Veterans Affairs Covid-19 Mortgages Forbearance Consumer Finance

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  • FTC, DFPI shut down operation offering mortgage relief

    Federal Issues

    On September 19, the FTC and the California Department of Financial Protection (DFPI) announced a lawsuit against several companies and owners for allegedly operating an illegal mortgage relief operation. (See also DFPI’s announcement here.) The filing marks the agencies’ first joint action, which alleges the defendants’ conduct violated the California Consumer Financial Protection Law, the FTC Act, the FTC’s Mortgage Assistance Relief Services Rule (the MARS Rule or Regulation O), the Telemarketing Sales Rule, and the Covid-19 Consumer Protection Act. The agencies claimed that the defendants preyed on distressed consumers with false promises of mortgage assistance relief. According to the complaint, the defendants made misleading claims during telemarketing calls to consumers, including those with numbers on the National Do Not Call Registry, as well as through text messages and in online ads. In certain cases, defendants represented they were affiliated with government agencies or were part of a Covid-19 pandemic assistance program. Among other things, defendants falsely claimed they were able to lower consumers’ interest rates or payments, and instructed consumers not to pay their mortgages, leading to late fees and significantly lower credit score. Defendants also allegedly told consumers not to communicate directly with their lenders, which caused consumers to miss default notices and face foreclosure. Additionally, defendants charged consumers illegal up-front fees ranging from $500 to $2,900 a month, and told consumers they were negotiating loan modifications that in most cases never happened.

    The U.S. District Court for the Central District of California granted a restraining order temporarily shutting down the defendants’ operations. In freezing the defendants’ assets and ordering them to submit financial statements, the court noted that the agencies established a likelihood of success in showing that the defendants “have falsely, deceptively, and illegally marketed, advertised, and sold mortgage relief assistance services.”

    Federal Issues FTC DFPI State Issues California Mortgages Consumer Finance Mortgage Relief Enforcement California Consumer Financial Protection Law FTC Act MARS Rule Regulation O Telemarketing Sales Rule Covid-19 Consumer Protection Act Covid-19 UDAP

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  • DOJ fines bank in "first-ever" FCA settlement over PPP loan

    Federal Issues

    On September 13, the U.S. Attorney’s Office for the Southern District of Texas announced an agreement with a bank to pay approximately $18,600 to resolve allegations that it violated the False Claims Act (FCA). This “is believed to be the nation’s first settlement with a Paycheck Protection Program (PPP) lender pursuant to the [FCA],” the announcement said. As previously covered by a Buckley Special Alert, in March 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act, which provided a host of relief measures for small businesses, including $349 billion for Small Business Administration loan forgiveness, guarantees, and subsidies. According to the announcement, the bank approved and processed a $213,400 PPP loan for a clinic, despite knowing that the sole owner of the clinic was facing criminal charges arising from his practice of prescribing opioids and was therefore ineligible to apply for the PPP loan. The announcement noted that “the bank processed the application anyway and falsely granted the money to [the sole owner].” The bank received a 5 percent processing fee from the government, including $10,670 to which it was not entitled. The owner of the clinic entered a $523,000 settlement in November 2021, resolving allegations that he used false statements on his PPP application and allegedly submitted false claims for the placement of electroacupuncture devices. In 2022, the owner also repaid the PPP loan in full. According to the announcement, the settlement reflects the bank’s “efforts to cooperate with the government’s investigation and provide relevant facts along with its implementation of additional compliance measures.”

    Federal Issues DOJ CARES Act FCA Covid-19 Enforcement

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  • WA Superior Court: Insurance commissioner overstepped in banning credit scoring in underwriting

    State Issues

    On August 29, the Washington State Superior Court entered a final order declaring that the Washington Insurance Commissioner exceeded his authority when he issued an emergency rule earlier this year banning the use of credit-based insurance scores in the rating and underwriting of insurance for a three-year period. As previously covered by InfoBytes, several industry groups led by the American Property Casualty Insurance Association (APCIA) sued to stop the rule from taking effect. The rule was intended to prevent discriminatory pricing in private auto, renters, and homeowners insurance in anticipation of the end of the CARES Act, and specifically prohibited insurers from “us[ing] credit history to place insurance coverage with a particular affiliated insurer or insurer within an overall group of affiliated insurance companies.” The rule applied to all new policies effective, and existing policies processed for renewal, on or after June 20, 2021. Industry groups countered that the rule would harm insured consumers in the state who pay less for auto, homeowners, and renters insurance because of the use of credit-based insurance scores to predict risk and set rates.

    According to a press release issued by APCIA, earlier this year the superior court issued a bench decision granting the trade group’s petition for a declaratory judgment and invalidating the rule. The superior court “held that the Commissioner could not rely on the more general rating standard statute that prohibited “excessive, inadequate, or unfairly discriminatory” rates to “eliminate all meaning from the more specific credit history statutes by which the legislature had authorized its use.” Calling the final order “an important victory for Washington consumers, particularly lower risk senior policyholders who were forced to pay more to subsidize higher risk policyholders because the rule eliminated the use of credit,” the trade groups said they were pleased that the court agreed with their position that the Commissioner “exceeded his authority when he acted contrary to the longstanding statute that authorized the use of credit in the property and casualty insurance space.”

    State Issues Courts Insurance Consumer Finance Credit Report Covid-19 Credit Scores Underwriting CARES Act

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  • District Court dismisses EFTA claims concerning fraudulent transactions


    On August 18, the U.S. District Court for the Eastern District of Michigan dismissed a class action alleging violations of the EFTA brought against a national bank on behalf of consumers who were issued prepaid debit cards providing Covid-19 pandemic unemployment insurance payments. Two of the plaintiffs alleged they experienced fraudulent transactions on their accounts. According to the plaintiffs, the bank froze one of the defendant’s accounts but failed to credit his account for the allegedly fraudulent transaction. In response to a second plaintiff’s fraud report, the bank allegedly froze her account and informed her that she had “to contact the unemployment agency because an unauthorized person had ‘gained access to the card and was using the unemployment benefits.’” The third plaintiff alleged that the bank froze her account based on suspected fraud and was informed that she would have to contact someone else to unfreeze the account. Plaintiffs sued for violations of the EFTA and raised several breach of contract and negligence claims.

    The court dismissed the EFTA claim on several grounds, including that (i) the second plaintiff’s claim is time-barred; (ii) the other two plaintiffs’ claims stem from the bank’s alleged errors related to unauthorized transactions, yet neither requested information or clarification about an electronic funds transfer; (iii) one of the plaintiffs never actually experienced fraud (the court emphasized that the EFTA does not regulate account freezes; it regulates electronic funds transfers); and (iv) one of the plaintiff’s failed to plausibly plead that he complied with the EFTA’s notification requirements that must be met before a defendant conducts an investigation. The court also determined that the breach of contract claims failed, citing, among other things, that if an account did not have an unauthorized transaction a defendant cannot breach its reimbursement duties. Nor did the other two plaintiffs provide proper notice to trigger the bank’s duty to investigate, the court wrote, adding that the negligence claims also failed because the plaintiffs failed to respond to a request asking them to show how the bank’s actions caused them injury.

    Courts EFTA Covid-19 Consumer Finance Fraud

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