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Financial Services Law Insights and Observations


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  • CFPB reports negative equity findings from the Auto Finance Data Pilot

    Federal Issues

    On June 17, the CFPB published the first report in a series that will analyze detailed information from nine major auto lenders – including banks, finance companies, and captive lenders – following the launch of its Auto Finance Data Pilot. The initiative aimed to monitor the market to better understand loan attributes that may result in increased consumer distress.

    This report analyzed financing of negative equity, “where the trade-in value offered for a consumer’s vehicle is less than the outstanding loan balance and the unpaid balance is rolled into the new loan.” According to the CFPB’s report, between 2018 and 2022, 11.6 percent of all vehicle loans in the dataset collected by the CFPB from industry participants included negative equity, ranging from about 8 percent of such loans in 2022, to about 17 percent in 2020. Among other findings, the report also highlighted that when compared to consumers who had a positive trade-in balance, consumers who financed negative equity: (i) financed larger loans; (ii) had lower credit scores and household income; (iii) had longer loan terms; and (iv) were more than twice as likely to have their account assigned to repossession within two years. The Bureau concluded that a higher proportion of consumers buying less expensive vehicles tended to finance negative equity into their auto loans compared with those purchasing more expensive vehicles. The CFPB said data from the pilot suggested that financing negative equity can result in unfavorable outcomes for consumers, with both the occurrence and the amount of negative equity financed increasing through 2023.

    Federal Issues CFPB Auto Finance Pilot Program Consumer Finance Consumer Protection

  • CFPB highlights updated guidance on unemployment benefit delivery, prepaid card fees

    Federal Issues

    On June 17, the CFPB published a blog post highlighting The Department of Labor’s recently updated Unemployment Insurance Program Letter which clarified regulatory obligations regarding the delivery of unemployment benefits by state workforce agencies. The revised guidance came in response to CFPB research which identified issues with prepaid debit cards such as “junk fees” that lessen the value of benefits for recipients, the CFPB said. The guidance will aim to ensure that unemployment insurance, particularly highlighted during the Covid-19 pandemic, was delivered efficiently and with minimal additional costs to beneficiaries.

    The guidance reiterated that recipients of unemployment benefits must be given a choice in how they receive their payments. It is unlawful for a state to require recipients to receive any unemployment payments on a state-administered debit card, even if they have the option of moving funds to another account later. The CFPB found that certain fees associated with prepaid cards, including ATM and customer service fees, can be burdensome for users, and states were encouraged to negotiate terms that reduce or eliminate additional fees. Recipients facing issues with prepaid cards will be advised to file a complaint with the CFPB or reach out to their state unemployment offices for assistance. 

    Federal Issues Agency Rule-Making & Guidance Department of Labor CFPB Prepaid Cards

  • CFPB proposes order against co-trustees for concealing assets to avoid fine

    Federal Issues

    On June 17, the CFPB filed a stipulated order and judgment, subject to court approval in the U.S. District Court for the District of Kansas, in an action against two individuals to resolve a lawsuit accusing them of concealing assets. The CFPB averred the defendants engaged in multiple fraudulent transfers over two years to avoid paying a fine owed to the Bureau. As previously covered by InfoBytes, the CFPB filed a complaint last year accusing the individuals of concealing assets to avoid paying $38 million in restitution and $12.5 million in civil penalties owed by the company and an individual defendant related to their payday lending practices. The Bureau will be seeking recovery of the transferred funds by declaring the transactions fraudulent and imposing liens on properties, as well as pursuing monetary judgment against the wife of one of the individual defendants and her trust.

    The stipulated order and judgment would release freezes and holds on defendants’ accounts and require defendants to pay about $7.3 million of an imposed $12.3 million judgment, with the remainder suspended due to a demonstrated inability to pay more. The payment will apply toward satisfying one defendant’s existing $43 million judgment, which included consumer redress and civil money penalties. That defendant must also share their filed federal and state income taxes with the Bureau until the fine is paid. If any additional financial information is found or if defendants made any financial misrepresentations, then defendants would be required to pay the fine in full. 

    Federal Issues Courts CFPB Enforcement Trust Fund Payday Lending Online Lending FDCPA

  • CFPB’s payday lender rule to begin in March 2025

    Agency Rule-Making & Guidance

    On June 14, the CFPB published a press release announcing that its payday lender rule from 2017, titled “Payday, Vehicle Title and Certain High-Cost Installment Loans,” will take effect on or around March 30, 2025. The rule will target unfair and abusive practices in short-term lending and will aim to curb lenders’ repeated attempts to withdraw payments from consumers’ accounts even after knowing the accounts may have nonsufficient funds. The CFPB found that such practices resulted in accumulated fees for consumers such as nonsufficient fund fees and overdraft fees. The Bureau also maintained that repeated attempts to withdraw payment from a consumer’s account rarely benefitted lenders because once a withdrawal fails, consecutive attempts are unlikely to succeed.

    As previously covered by InfoBytes, the Bureau’s payday lender rule included a “two-strikes-and-you’re-out” rule, which would prohibit lenders from attempting further withdrawals after two failed attempts without the borrower’s explicit authorization. The rule was supposed to take effect in 2019 – however, the rule’s implementation was delayed due to a challenge by an industry trade group. A court order pausing the rule will expire 286 days after the Supreme Court issued a decision in CFPB v. CFSA, which it did so on June 17. In CFPB v. CFSA, the Supreme Court held that the CFPB’s funding structure was constitutional (covered by InfoBytes here).

    Agency Rule-Making & Guidance CFPB Payday Lending Supreme Court Federal Issues

  • Chopra testifies at House, Senate committee hearings

    Federal Issues

    On June 12, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing to address the CFPB’s Semi-Annual Report to Congress. The CFPB Director, Rohit Chopra, in his opening statement addressed the Committee to report on the agency's recent activities and initiatives including its efforts in financial data privacy, open banking rules, and the protection of financial data from surveillance and misuse. Additionally, Chopra highlighted the CFPB’s work in the credit card market, having issued rules seeking to reduce certain credit card fees, foster competition, and protect consumers’ points and rewards. Chopra expressed a willingness to collaborate with the Committee to further address the country’s financial challenges.

    Ranking Member Tim Scott (R-SC) warned that the Supreme Court’s recent ruling on the constitutionality of the CFPB’s funding structure was “not a green light for your progressive wish list.” Ranking Member Scott also questioned the CFPB’s issuance of civil investigative demands (CIDs), providing an example of a lengthy multi-year audit that resulted in no CFPB action. Additionally, Senator Reed (D-RI) raised concerns about the Buy Now, Pay Later (BNPL) market, noting that unlike credit card companies, BNPL firms do not consistently report consumer repayments to credit bureaus. He noted that the situation could lead to issues where consumers do not receive credit score benefits for responsible credit usage and where the industry lacks visibility into a consumer's total debt burden. Director Chopra acknowledged Reed’s concerns, citing that auto and mortgage lenders are worried about the lack of BNPL data in credit reports, which could affect their ability to assess borrowers' creditworthiness. Chopra suggested that while reporting is not currently mandated by federal law, it was an area of concern for the CFPB. Additionally, Senator Lummis (R-WY) highlighted “junk fees” and how the concept is being applied in the mortgage industry. Lummis mentioned a working paper by CFPB staff that credited consumer education provided by banks for a particular finding regarding rural borrowers’ understanding of the mortgage process. She followed by asking Chopra if the Bureau considered consumer education a valuable service provided by community banks because, according to Lummis, the cost to educate consumers was being labeled as a “junk fee” by the administration. Chopra’s response noted that there was no attempt to label all mortgage closing costs as “junk fees.” Senator Kennedy (R-LA) expressed confusion regarding the funding of the CFPB, referencing a distinction between revenue and earnings. He cited the statute that governs the CFPB's funding, which stated the agency received its funds from the combined earnings of the Fed. Kennedy pointed out that since September 2022, the Fed had been losing money and therefore had no earnings to transfer, questioning how the CFPB was entitled to any funds under these circumstances. Director Chopra acknowledged the concern and suggested that it was a theory the CFPB has previously explored.

    The following day, the House Financial Services Committee also held a hearing to address the CFPB’s Semi-Annual Report. Representative McHenry (R-NC) reflected on the Supreme Court's decision to uphold the funding structure of the CFPB as established by the Dodd-Frank Act. He interpreted the court's opinion as affirming Congress's authority over funding mechanisms and suggested that Democrats join Republicans in creating legislative plans to make the CFPB more accountable. McHenry criticized Director Chopra's leadership, claiming the CFPB under Chopra had become politicized and was neglecting consumer protection in favor of political objectives. He also accused the CFPB of unfairly characterizing financial institutions and questioned Chopra's involvement in the FDIC's internal issues, referencing a toxic workplace culture and leadership problems. On the other hand, Representative Waters (D-CA) highlighted that the CFPB was “combating excessive and illegal junk fees, fighting against housing discrimination and redlining, and holding mega-banks accountable for breaking the law and harming consumers.”

    Addressing the Bureau’s proposed rule under Section 1033 of the Dodd-Frank Act, which governed consumer access to financial records, McHenry expressed concerns that the CFPB's proposed regulations might “entrench” those in the financial industry by valuing their hold on financial data. Director Chopra responded by emphasizing the need to prevent practices like bait-and-switch, where financial products such as auto loans are offered with the ulterior motive of “harvesting” and selling data. When McHenry asked for a timeline, Chopra indicated the aim to finalize the rule by October.

    Among questions from other representatives, Representative Wagner (R-MO) questioned Director Chopra about the principles of risk-based pricing in the financial industry. Chopra stated that while it was not mandated, risk-based pricing was commonly used by institutions to appropriately measure risk. Wagner expressed concerns that the CFPB's new rules on credit card late fees and overdrafts could undermine this principle. Chopra disagreed, arguing that the rules would encourage better risk-based pricing, and he did not see a connection between aligning late fees with Congressional guidelines and undermining risk-based pricing. Wagner then suggested the new rules could increase persistent debt among consumers. Throughout the discussion, Chopra insisted that the CFPB's actions were in line with common sense and Congressional prohibitions against unreasonable fees.

    Federal Issues CFPB Senate Congressional Oversight Hearing U.S. House

  • CFPB bans medical debt in credit reporting decisions

    Federal Issues

    On June 11, the CFPB released a proposed rule to ban obtaining or using medical information for credit eligibility determinations. Specifically, the proposed rule would amend the FCRA to remove the medical financial information exception and limit credit reporting of medical debt.

    In 2003, Congress amended the FCRA to restrict creditors’ use of medical information for purposes of making credit eligibility determinations, and it authorized the banking agencies to issue exemptions from the restriction through rulemaking. In 2005, the banking agencies issued a regulatory exception to permit creditors to obtain and use consumers’ medical financial information when making credit eligibility determinations if certain conditions were met. The CFPB’s proposed rule would roll back the 2005 exception, in addition to other changes. First, the proposed rule would remove the financial information exception that permits creditors to obtain and use medical and financial information (including regarding medical debt) in connection with credit eligibility decisions (with certain limited exceptions). Second, the proposed rule would limit consumer reporting agencies’ ability to furnish medical debt information to creditors.

    CFPB Director Rohit Chopra noted in prepared remarks that the proposed rule would eliminate the “loophole” that allowed lenders to access and use medical debt information, which he argued would align regulations with congressional intent. A fact sheet from the White House, published on behalf of Vice President Kamala Harris and Director Chopra, stated that this action builds on prior efforts by the Biden-Harris administration to reduce the burden of medical debt.

    As previously covered by InfoBytes, the Bureau announced this initiative in September 2023. The CFPB signaled its interest in proposing this rule when it threw its support behind Connecticut SB 395, which bans the inclusion of medical debt in consumer reports (covered by InfoBytes here). The proposed rule would go into effect 60 days following publication in the Federal Register.

    Federal Issues CFPB Medical Debt Credit Reporting FCRA

  • Fed seeks to renew TILA, Regulation Z information collection

    On June 4, the Fed published a request for comment on a proposal to extend the “Recordkeeping and Disclosure Requirements Associated with CFPB’s Regulation Z” for three years without revision. According to the notice, the Fed’s request would support the CFPB’s Regulation Z by ensuring consumers receive detailed information about credit terms and costs, particularly in the context of residential real estate transactions, to promote informed credit use. As part of this request, the Fed will invite public comments to address the efficacy of the information collection requirements and seek ways to enhance the quality of collected information, among other things. Comments must be received by August 6. 

    Bank Regulatory Federal Issues Federal Reserve CFPB TILA Regulation Z

  • CFPB proposes final rule for registering nonbanks for supervision

    Agency Rule-Making & Guidance

    On June 3, the CFPB issued a final rule to require the registration and reporting of nonbank financial institutions that have been subject to public orders resulting from regulatory actions.  The Bureau’s stated goal in establishing the registry was to assist the public and enforcement agencies in identifying repeat offenders. The registry will compile and maintain all public orders issued by an agency or court, involving certain nonbank entities that were issued at least in part by an action or proceeding by any federal, state or local agency. The final rule mandated those nonbank covered entities—excluding depository institutions and credit unions—must register with the Bureau when they are subject to a public order. Under the CFPA, Section 1022(b)(1) authorized the Bureau to create rules “as may be necessary or appropriate to enable the Bureau to… carry out the purposes and objectives of the Federal consumer financial laws.” Section 1024(b) authorized the Bureau to exercise supervisory authority over certain nonbank entities. The final rule will also require nonbank entities to submit an annual written statement confirming compliance with each public order.

    This rule will apply to all covered entities, specifically nonbanks, which have entered into an order with an effective date on or later than January 1, 2017, and which remain in effect following the effective date of the final rule. Every nonbank that was named in an order and was covered under the rule must register, submitting all information required including the executed order. However, nonbanks that were subject to an order published on the NMLS’s Consumer Access website (other than an order in which the CFPB was involved) can elect for a simplified option.

    This action will be the latest step in the Bureau’s efforts to expand its nonbank supervision program. As previously covered by InfoBytes, the CFPB released a supervisory designation over a nonbank company in March since that company’s conduct posed an alleged risk to consumers (here), and in April the Bureau released its procedural rule to change how it will supervise nonbanks (here). In a prepared statement, the Director of the CFPB, Rohit Chopra, expressed that the final rule was designed to aid the CFPB and other law enforcement agencies to “monitor and track repeat offenders in order to better hold them accountable” regardless of companies reoffending. The director emphasized that court or enforcement orders are not a “tipsheet or set of suggestions.” This rule will go into effect on September 16. 

    Agency Rule-Making & Guidance Federal Issues CFPB Supervision Nonbank Nonbank Supervision

  • CFPB finalizes standards setting body component of open banking rule

    Agency Rule-Making & Guidance

    On June 5, the CFPB announced it finalized in part its proposed Personal Financial Data Rights rule, thus establishing the minimum qualifications necessary for the Bureau to become a recognized industry standard setting body when the full rule becomes final. Last October, the CFPB proposed the Personal Financial Data Rights rule to implement Section 1033 of the CFPA (covered by InfoBytes here) which was intended to offer consumers more control over their financial data and more consumer protections for misused data.

    After considering relevant public comments, the CFPB made several changes to the sections concerning standard setters and the standards they issue. Commenters asked for clarity regarding changes in standards, such as when a consensus standard ceases to have consensus status, and how it could potentially cause market uncertainty. In response, the Bureau replaced the term “qualified industry standard” with “consensus standard” and added a newly defined “recognized standard setter” term. The final rule defined “consensus standard” to clarify when a given standard will be a consensus standard, and also added that a “consensus standard” must be one that will be adopted and maintained by a recognized standard setter. In response to concerns about market uncertainty, the CFPB responded that they expect revocation of recognition for a standard setter to be a rare occurrence.

    Regarding periodic review, the final rule extended the maximum duration of the CFPB’s recognition of a standard-setting body from the proposed duration of three years to five years. The Bureau expects this change will incentivize standard-setting bodies to obtain recognition. The final rule included “data recipients” as an interested party in response to commenter concern that certain fintech sectors may be excluded. Additionally, meeting the criteria in the final rule is just the starting point for approval, as the CFPB may also assess whether the standard-setting body will be committed to developing and upholding open banking standards.

    The final rule also included a guide that detailed how standard setters can apply for CFPB recognition, how the Bureau will evaluate applications, and what standard setters can expect once recognized. The final rule will go into effect 30 days after publication in the Federal Register. 

    Agency Rule-Making & Guidance Federal Issues Privacy CFPB Open Banking Consumer Protection

  • CFPB releases semi-annual report on mid-year 2023

    Federal Issues

    On June 4, the CFPB released its semi-annual report to Congress, for the period beginning April 1, 2023, and ending September 30, 2023. The report highlighted rules and orders, complaints, supervisory and enforcement actions, and fair lending initiatives from the Bureau. The Bureau provided an overview of three final rules: a final rule on its authority over nonbanks in determining their risk, a final rule on small business lending under the ECOA, and an interim final rule in helping transition the LIBOR changes to reflect the LIBOR Act. Additionally, the report included a compilation of reports, guidance and spotlights on different consumer finance issues. Looking ahead, the Bureau noted its upcoming rules following September 2023 with four proposed rules. One on personal financial data rights, another on defining the participants for digital consumer payment applications, another on overdraft lending, one on fees for instantaneously declined transactions, and a final rule on credit card penalty fees.

    During the period from October 2022 to September 2023, the Bureau received 1.55 million consumer complaints. Of these, around 1.2 million complaints were sent to the relevant companies for review. When broken out by category, 79 percent of all consumer complaints were related to credit or other consumer reporting, with 7 percent on debt collection, 4 percent on credit cards, 4 percent on checking or savings, and 2 percent on mortgages; the remaining 4 percent was spread among a variety of consumer finance products.

    During the semi-annual reporting period, the CFPB executed a total of 55 public supervisory and enforcement actions. On state consumer financial law, the Bureau noted its ongoing complaint against an education firm accused of engaging in deceptive marketing and unfair debt collection practices with ten state attorneys general (as covered by InfoBytes here). Additionally, there were three lawsuits submitted along with the New York State Attorney General. Finally, for fair lending, the Bureau discussed its enforcement and rulemaking, with the issuance of a proposed rule on quality for Automated Valuation Models for real estate collateral securing mortgage loans. 

    Federal Issues CFPB Fair Lending Enforcement Rulemaking Agenda


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