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  • Trusts are covered persons subject to the CFPA, 3rd Circuit upholds CFPB FDCPA case

    Courts

    On March 19, the U.S. Court of Appeals for the Third Circuit filed an opinion remanding a case between the CFPB and defendant statutory trusts to the District Court. After issuing a civil investigative demand in 2014, the CFPB initiated an enforcement action in September 2017 against a collection of 15 Delaware statutory trusts that furnished over 800,000 private loans and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or was outside the applicable statute of limitations (covered by InfoBytes here). Then, early last year, the parties settled and asked the court to enter a consent judgment, which was denied (covered by InfoBytes here).

    The 3rd Circuit addressed two questions: (i) whether the trusts are covered persons subject to the CFPA; and (ii) whether the CFPB was required to ratify the underlying action that questioned a constitutional deficiency within the Bureau. On the statutory issue, the court found that the trusts fell within the purview of the CFPA because trusts “engage” in offering or providing a consumer financial product or service, specifically student loan servicing and debt collection, as explicitly stated in the trust agreements each trust entered. Regarding the constitutional question, the defendants argued that the Bureau needed to ratify the underlying suit because it was initiated while the agency head was improperly insulated, and since the Bureau ratified it after the statute of limitations had run, the suit was untimely. The court disagreed and found that the defendants’ analysis of the here-and-now injury “doesn’t go far enough,” therefore the CFPB did not need to ratify this action before the statute of limitations had run because the impermissible insulation provision does not, on its own, cause harm.  

    Courts Federal Issues CFPB Third Circuit FDCPA Student Lending Debt Collection Enforcement Consumer Finance CFPA

  • FTC fines two fintech firms $59 million for PPP loan practices

    Federal Issues

    On March 18, the FTC announced enforcement actions against two companies that allegedly made “false promises” to small businesses seeking Paycheck Protection Program (PPP) loans. Both companies have agreed to settle with the FTC to resolve alleged violations of the Covid-19 Consumer Protection Act and the FTC Act. 

    According to the FTC’s complaint on the first company—a company that offers online financing products to small businesses—and its subsidiary allegedly engaged in a pattern of deceptive and unfair conduct by quoting shorter processing times for consumers’ applications, despite being aware of the significant delays. The companies also allegedly ignored consumers’ requests to withdraw their pending applications frequently. The FTC further alleged that roughly 40 percent of the companies’ consumers had their applications canceled or rejected. The proposed stipulated order included a prohibition against misrepresentations, an injunction concerning the companies’ application practices (which had prohibited them from failing to allow consumers to promptly withdraw their applications), and a $33 million judgment for monetary relief. The companies must also comply with reporting requirements detailed in the settlement.

    The FTC’s complaint against the second company—an online platform offering PPP financing services to small businesses—and its CEO, alleged that respondents made deceptive claims to consumers, many of whom were eligible but never received funding because the respondents failed to fix known technical issues with their system or provide consumers with assistance. According to the complaint, the company claimed that processing a loan would only take 24 hours through the “fast lane” service, but the company’s chat support was slow, as were its review and processing times. The FTC noted that the time-sensitive nature of PPP funding meant any delays had significant impacts on consumers. In addition to the $26 million monetary judgment, the settlement with the company and its CEO prohibited them from making any deceptive, false, or unsubstantiated claims about financial services or products.

    Federal Issues FTC FTC Act Enforcement Covid-19 PPP

  • CFPB limits examiner term limits to five years after concurring with OIG recommendations

    On February 26, the Office of Inspector General for the CFPB (OIG) released a report entitled, “The CFPB Can Enhance Certain Practices to Mitigate the Risk of Conflicts of Interest for Division of Supervision, Enforcement and Fair Lending Employees.” The report found that the CFPB’s Office of Supervision Examinations (OSE) does not have a formal policy that requires bank examiners to rotate assignments in a specified time frame, which increases potential conflicts of interest. The OSE examines banks to check for compliance failures in federal consumer financial law and is based out of four regional offices: New York (Northeast), Atlanta (Southeast), Chicago (Midwest), and San Francisco (West). The OIG argued that a formal policy adopted by the OSE would more effectively monitor examiner rotations, promoting “objectivity, cross-training, and broader expertise” and reducing the risk of regulatory capture – or subjecting the same regulated entity to the same examiner and subsequently risking independence and objectivity of exams. The OIG’s report posited two recommendations: (i) that the CFPB implement a formal examiner rotation policy; and (ii) that the CFPB track and document assignments for examiners and its members.

    The OIG found that while some OSE offices have informal examiner rotation policies in place, there is no global system in place to track examiner assignments to ensure regular rotation. For example, OSE’s Northeast and West regional offices have written policies that require certain staff members to rotate every five years. However, the Southeast and Midwest offices do not have any written policies in place and stated having a “natural” turnover process based on needs and availability, among others.

    The CFPB concurred with both OIG recommendations, stating that it will limit the time for lead examiners and field managers to five years and develop a tool for tracking these assignments.

    Bank Regulatory CFPB OIG Enforcement Examination

  • CFPB warns lead generators, digital comparison-shopping tool operators of potential CFPA violations

    Federal Issues

    On February 29, the CFPB issued a circular to law enforcement agencies and regulators explaining how operators of digital comparison-shopping tools or lead generators can potentially violate the CFPA’s prohibition on abusive acts or practices by steering consumers towards options that best serve the operator or the lead generator. The circular further discussed “how law enforcement agencies and regulators can evaluate operators of comparison-shopping tools… to manipulate results” to appease consumer preferences.

    The Bureau explained that while consumers often use these tools to research, compare, and select financial products, some intermediaries also functioned as lead generators that sold consumer information to lenders. These intermediaries may have received compensation, the CFPB said, often termed as “bounties,” from financial providers for preferential treatment or lead generation. The circular recognized that operators of these tools may have engaged in commercial arrangements with financial providers and may have received compensation based on user actions or bids.

    The CFPB stated that both digital comparison-shopping tool operators and lead generators can qualify as “covered persons” under CFPA section 1031(d)(2)(C) which prohibits them from engaging in unfair, deceptive, or abusive acts or practices, particularly those that “take unreasonable advantage” of consumers so they may act in the “covered person’s” best interests. The circular outlined elements of CFPA Section 1031(d)(2)(C) and applied the elements including reasonable reliance by consumers on covered entities to act in their interests, to an evaluation of the operator or lead generator activities. Notably, the circular warned that reasonable consumer reliance could be created based on the representations of the tool operator or lead generator, as well as implicit or explicit communications. Further, the Bureau added that steering consumers towards certain products or providers for the financial benefit of the operator or lead generator, rather than consumer interest, constituted unreasonable advantage-taking.

    Finally, the circular included a non-exhaustive list of examples of preferencing or steering arrangements and advised law enforcement agencies and regulators to scrutinize bounty or bidding schemes and decision-making processes to identify abusive conduct.

     

    Federal Issues CFPB Lead Generation CFPA Enforcement Consumer Protection Abusive Deceptive Unfair

  • FDIC orders bank to plan termination of relationships with “significant” fintech partners

    Recently, the FDIC released a consent order against a Tennessee bank as part of its release of January Enforcement Decisions and Orders. The FDIC stated that within sixty days of the effective date of the consent order, the bank must “submit a general contingency plan to the Regional Director… [on] how the [b]ank will administer an effective and orderly termination with significant third-party FinTech partners,” as part of its Third-Party Risk Management program for the bank. The Program must assess and manage the risks posed by all fintech firms associated with the bank. It will include policies related to due diligence and risk assessment criteria that are appropriate to the products and services provided by the fintech partner. The bank must also engage an independent firm for completion of a comprehensive Banking-as-a-Service Risk Assessment Report.

    The bank further consented, without admitting or denying any charges of unsafe or unsound banking practices, to board supervision of the bank’s management and approval of the bank’s policies and objectives, qualified management, the Regional Director’s prior consent for new or expanded lines of business that would result in an annual 10 percent growth in total assets or liabilities, and a comprehensive strategic plan.

     

    Bank Regulatory FDIC Consent Order Fintech Risk Management Enforcement

  • Minnesota Attorney General settles with tribal company over high interest rates

    State Issues

    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.

    State Issues Courts Minnesota Interest Rate Consumer Finance State Attorney General Settlement Enforcement Consumer Protection

  • 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.

    Bank Regulatory OCC Bank Supervision Enforcement

  • FTC takes action against tax prep company for alleged unfair and deceptive practices

    Federal Issues

    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).

    Federal Issues FTC Enforcement Unfair Deceptive FTC Act Consumer Protection

  • FTC provides its 2023 ECOA activities to CFPB

    Federal Issues

    On February 12, the FTC provided the CFPB with an annual summary of its 2023 enforcement, research and policy development, and educational-related initiatives on ECOA, as Dodd-Frank allows the Commission to enforce ECOA and any CFPB rules applicable to entities within the FTC’s jurisdiction. The letter emphasized the commitment of each agency to enforce laws protecting civil rights, fair competition, consumer protection, and equal opportunity in the development and use of automated systems and artificial intelligence. Additionally, the letter stated the FTC continued its involvement in initiatives such as military outreach and participation in interagency task forces on fair lending. Its initiatives focused on consumer and business education regarding issues related to Regulation B and guiding fair lending practices. The Commission also highlighted (1) an enforcement action against a group of auto dealerships alleging ECOA and its implementing Regulation B violations in connection with the sale of add-on products; (2) refund checks sent as a result of the settlement of two enforcement actions against auto dealerships in which it was alleged that the dealerships violated ECOA and Regulation B by discrimination against Black and Latino consumers by charging them higher financing costs; and (3) an amicus brief submitted to an appeals court in support of the CFPB’s appeal to the U.S. Court of Appeals for the Seventh Circuit of the lower court’s decision regarding the applicability of ECOA to individuals other than “applicants.” 

    Federal Issues FTC CFPB ECOA Dodd-Frank Enforcement

  • FTC encourages potential defendants to sign tolling agreements to avoid "undue delay"

    Federal Issues

    On February 20, Samuel Levine, the director of the FTC’s Bureau of Consumer Protection, said in an FTC blog post, that although the FTC welcomes open dialogue with parties in open investigations, the Commission is prepared to quickly pivot to litigation in cases should companies cause “undue delay” to redress for consumers. In light of a 2021 Supreme Court ruling in AMG Capital Management, LLC v. FTC, the FTC can no longer pursue monetary relief under Section 13(b) of the FTC Act, which lacks a statute of limitations. Instead, the FTC said, it frequently turns to Section 19, 15 U.S.C. § 57b, which allows courts to order defendants to provide redress only if violations occurred within three years of the Commission’s action. To facilitate timely productive discussions, the FTC Bureau of Consumer Protection often requests tolling agreements from potential defendants to provide time for information gathering and dialogue while preserving the possibility of a pre-litigation settlement or closing the investigation in appropriate cases. Parties are encouraged to sign these agreements, as refusal may impact extension requests and meeting opportunities. If necessary, the FTC will recommend litigation to protect consumer interests.

    Federal Issues FTC FTC Act Litigation Enforcement

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