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On November 6, the Federal Reserve Board (Fed) released its October 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices. Responses came from both domestic banks and U.S. branches and agencies of foreign banks, and focused on bank loans made to businesses and households over the past three months. The October survey results indicated that over the third quarter of 2017, on balance, lenders eased their standards on commercial and industrial loans with demand for such loans decreasing. However, lenders left their standards on commercial real estate (CRE) loans unchanged and reported that demand for CRE loans weakened. As to loans to households, banks reported that standards for all categories of residential real estate (RRE) lending “either eased or remained basically unchanged,” and that the demand for RRE loans also weakened.
The survey also included two sets of special questions addressing changes in household lending conditions.
The first set of these special questions asked banks to specify the reasons for changing this year their credit policies on credit card and auto loans to prime and subprime borrowers. Respondents’ most reported reasons for tightening standards or terms on these types of loans were (i) “a less favorable or more uncertain economic outlook”; (ii) “a deterioration or expected deterioration in the quality of their existing loan portfolio”; and (iii) “a reduced tolerance for risk.” Auto loan reasons also focused on “less favorable or more uncertain expectations regarding collateral values.”
The second set of these special questions asked banks for their views as to why they have experienced stronger or weaker demand for credit card and auto loans over this year. Respondents’ reported that a strengthening of demand for credit card and auto loans from prime borrowers could be attributed to customers’ confidence as well as their improved ability to manage debt service burdens. The most reported reasons for weakened demand for credit card and auto loans from prime borrowers were an increase in interest rates and a shift in customers’ borrowing “from their bank to other bank or nonbank sources.”
For additional details see:
- Table 1 – Opinion Survey on Bank Lending Practices at Selected Large Banks in the U.S.
- Table 2 – Opinion Survey on Bank Lending Practices at Selected Branches & Agencies of Foreign Banks
- Charts – Measures of Supply and Demand for Commercial & Industrial Loans
On November 6, the FTC announced a settlement of $1.4 million with a Southern California auto dealership for violating a 2014 administrative order (Order). The Order prohibited the dealership from misrepresenting the cost to finance or lease a vehicle. In issuing the Order, the FTC alleged that the dealership had violated the FTC Act by using advertisements that deceptively stated a $0 up-front lease option while excluding other fees and costs, and also that the dealership’s advertisements violated disclosure requirements of the Consumer Leasing Act (CLA) and TILA.
The new settlement resolves a complaint in which the FTC alleged the auto dealership “routinely violated” the Order requiring the dealership to, among other things, (i) accurately represent costs and terms of financing or leasing vehicles; (ii) conform its advertisements to the requirements of the CLA and TILA; and (iv) maintain necessary records and make those records available to the agency. In addition to the monetary penalty and the prohibition of similar practices, the settlement also subjects the dealership to strong compliance and reporting requirements.
On November 1, the CFPB released a report finding an increase in the number of auto loans with terms of six years or longer. Specifically, the report notes that these longer-term loans made up 42 percent of auto loans originated in 2017, an increase from 26 percent of auto loans originated in 2009. The report observes that, while longer-term loans may make monthly payments more affordable, it is not clear that consumers are “better off” or more likely to repay such loans because of the increased financing costs and larger amounts financed.
The report is a product of the CFPB’s Consumer Credit Trends tool (previously covered by InfoBytes) – a web-based resource that collects data on the auto finance, credit card, mortgage, and student loan markets. The tool’s data is drawn from a “nationally representative sample of credit records” kept by one of the top three U.S. credit reporting companies.
New York AG, Auto Dealers Reach Settlement Over Advance Fee Allegations That Triggered Inflated Vehicle Prices
On October 12, New York Attorney General Eric T. Schneiderman announced separate settlements (here and here) with two auto dealer groups to resolve allegations that they violated state and federal law by charging upfront fees for “after-sale” credit repair and identity theft protection services, which were provided by a third party, and bundling those fees into vehicle sale or lease prices. According to the settlements, the groups—which have neither admitted nor denied the allegations—are required to pay affected consumers more than $900,000 in restitution and pay a $135,000 fine to the state. The settlements also prohibit the groups from selling or marketing credit repair or identity theft protection services and require that consumers be informed—both orally and in writing—of any other “after-sale” products.
On September 26, Massachusetts Attorney General Maura Healey announced a lawsuit against a large auto dealership and its in-house lender for allegedly misleading consumers into purchasing unfavorable sale packages. According to the Commonwealth’s complaint, filed in the Suffolk County Superior Court, the auto dealer purportedly (i) sold consumers cars priced at more than double their retail value; (ii) extended loans to consumers with an APR of 20 percent, regardless of credit qualifications; and (iii) combined these sales with an expensive and limited service contract. The complaint further alleges that because of these sales practices and a faulty underwriting process, more than half of the auto dealer’s sales fail or end in repossession. The complaint seeks injunctive relief, restitution, civil penalties, and attorney fees.
DOJ Announces Settlement With Financial Institution Over Alleged SCRA Violations Concerning Auto Repossessions
On September 18, the DOJ announced a settlement with a large financial institution resolving allegations that the financial institution had illegally repossessed 164 active-duty servicemembers’ vehicles without first obtaining necessary court orders in violation of the Servicemembers Civil Relief Act (SCRA). The DOJ filed its complaint against the financial institution in the U.S. District Court for the Northern District of Texas the same day the settlement agreement was reached. According to the complaint, the financial institution repossessed the vehicles between 2007 and 2010, when it completed the sale of its automobile lending and servicing arm to a different company. As part of a separate enforcement action against the company that acquired the accounts, the DOJ discovered that the financial institution allegedly violated the SCRA by arranging “for the physical repossession of the automobile and later [selling] the account to [the new company], which attempted to collect fees relating to the unlawful repossession.” Further, the complaint alleges that the financial institution conducted repossessions without SCRA-required court orders, even though the company possessed information “in its own records suggesting that a borrower could be a SCRA-protected servicemember,” or knew that “the borrower was in military service or had received orders to report for military service” and “nevertheless continued repossession efforts and eventually succeeded in repossessing the [servicemembers’] vehicles.”
While the financial institution has denied the allegations, it agreed to compensate affected servicemembers $907,000, 163 of whom are to receive $5,000 each, in addition to the $5,000 previously received as partial compensation from a separate settlement the DOJ reached with the company that acquired the accounts. The remaining impacted servicemember, who did not receive partial compensation, will receive $10,000 from the escrow account. All 164 servicemembers will also receive $500 for “lost equity” and accrued interest. In addition, the financial institution must provide credit repair relief to each affected servicemember and any co-borrowers, and are required to cooperate with an “Independent Settlement Administrator” who will monitor compliance. Further, should the financial institution resume originating or servicing automobile loans, it is required to provide notice to the DOJ every six months of any SCRA or military-related complaint.
CFPB’s Summer Edition of Supervisory Highlights Discloses Findings Across Many Financial Services Areas
On September 12, the CFPB released its summer 2017 Supervisory Highlights, which outlines its supervisory and oversight actions in areas such as auto loan servicing, credit card account management, debt collection, deposit account supervision, mortgage origination and servicing, remittances, service provider programs, short-term small-dollar lending, and fair lending. According to the Supervisory Highlights, recent supervisory resolutions have “resulted in total restitution payments of approximately $14 million to more than 104,000 consumers during the review period” between January 2017 and June 2017.
As examples, in the area of auto loan servicing, examiners discovered vehicles were being repossessed even though the repossession should have been cancelled. Coding errors, document mishandling, and failure to timely cancel the repossession order were cited causes. Regarding fair lending examination findings, the CFPB discovered, in general, “deficiencies in oversight by board and senior management, monitoring and corrective action processes, compliance audits, and oversight of third-party service providers.” Examiners also conducted ECOA Baseline Reviews on mortgage servicers and discovered weaknesses in servicers’ fair lending compliance management systems. Findings in other areas include the following:
- consumers were provided inaccurate information about when bank checking account service fees would be waived, and banks misrepresented overdraft protection;
- debt collectors engaged in improper debt collection practices related to short-term, small-dollar loans, including attempts to collect debts owed by a different person or contacting third parties about consumers’ debts;
- companies overcharged mortgage closing fees or wrongly charged application fees that are prohibited by the Bureau’s Know Before You Owe mortgage disclosure rules; and
- borrowers were denied the opportunity to take full advantage of the mortgage loss mitigation options, and mortgage servicers failed to “exercise reasonable diligence in collecting information needed to complete the borrower’s application.”
The Bureau also set forth new examination procedures for HMDA data collection and reporting requirements as well as student loan servicers, in addition to providing guidance for covered persons and service providers regarding pay-by-phone fee assessments.
On August 22, the FTC released the agenda for the Protecting Military Consumers: A Common Ground Conference to be held on September 7 in Los Angeles. As previously discussed in InfoBytes, the conference is geared towards military attorneys, law enforcement personnel, and consumer protection officials to provide training on consumer fraud and other issues affecting servicemembers and their families, and will be held in partnership with state and local authorities. Topics for discussion on the agenda include, among things:
- higher education;
- identity theft and imposter scams;
- real estate fraud;
- auto financing;
- debt collection;
- lending; and
- privacy issues such as data collection, storage, and sharing.
Colorado UCCC Administrator Opinion Provides Guidance on Debt Cancellation and Suspension Agreement Fees
On August 7, the Colorado Attorney General’s Office, through the Administrator of the Uniform Consumer Credit Code (UCCC), issued an Administrator Opinion to provide clarification on fees related to debt cancellation and suspension agreements. The UCCC has adopted and authorized rules permitting additional charges to be assessed in addition to a finance charge, such as fees for Single Premium Non-Credit Insurance, Involuntary Unemployment Insurance Premiums, and Guaranteed Automobile Protection. However, because the UCCC has not yet adopted by rule permissible fees for debt cancellation and suspension agreements, those fees must be included in the calculation of the finance charge, even if they are “permitted by federal or state law or regulation—including debt cancellation and suspension agreements offered by Colorado-[c]hartered [b]anks, Colorado-[c]harted [i]ndustrial [b]anks, and Colorado-[c]hartered [c]redit [u]nions.” This Administrator Opinion rescinds the November 9, 2004 Advisory Opinion titled “Debt Cancellation and Suspension Agreements Offered by Colorado-Chartered Banks, Colorado-Chartered Industrial Banks, and Colorado Chartered Credit Unions.” Organizations have 120 days to comply with the newly issued guidance.
On August 7, the Division of Banks of the Massachusetts Office of Consumer Affairs and Business Regulation (Division) announced it had entered into consent orders with several motor vehicle sales finance companies to address allegations of unlicensed and illegal auto lending practices uncovered during an investigation of approximately 200 car dealerships. According to a press release issued by the Division, the investigation resulted in “five enforcement actions, 135 cease directives, $170,000 in fines and penalties, and more than $200,000 in consumer reimbursements.” Violations include, among others, (i) pricing vehicles far above blue book value; (ii) charging interest rates that approach or are at, or exceed the state’s maximum level, which is set at 21 percent, including interest rate violations occurring as a result of the financing of debt cancellation (GAP) coverage premiums; (iii) assessing interest and/or late fees after repossession of a vehicle “on which a repossession of the collateral has been executed”; and (iv) failure to obtain a motor vehicle sales finance company license through the Division, failure to address license renewal application deficiencies, or operating without a valid license. According to one consent order, the company allegedly failed to provide consumers an opportunity to “cure a default” before using starter interrupt devices to shut down their cars. A different consent order ordered the company to identify borrowers for whom their finance charges were calculated incorrectly, or those who overpaid due to a total loss insurance claim, and reimburse borrowers the amount that was overcharged or overpaid. A third consent order was issued to a California-based auto lender who purchased finance contracts from Massachusetts auto dealers without being licensed through the Division and engaged in several of the aforementioned violations.
None of the companies entering into the consent orders admitted to any of the allegations or the existence of any violation of state or federal law concerning their operations as motor vehicle sales finance companies.
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer and Dan Ladd to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Tim Lange to discuss "Update from 2019 NMLS Conference" at the California Mortgage Bankers Association Mortgage Quality & Compliance Committee webinar
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program